Summary
Description
Tax codes identify how much VAT is paid on different goods and services. If you're VAT registered, the tax code you enter against each transaction determines which box of your VAT Return is affected.
Let's look at the existing default tax codes, which boxes on your VAT return they affect and how they're set up in your tax codes settings.
NOTE: This guide relates to Sage 50cloud Accounts v27.1 and above only, which is what you need to use the import tax codes post-Brexit. We also have a Default tax codes guide for Sage 50cloud Accounts v27.0 and below >
Resolution
Find the right tax code to use
We have some handy guides to help you find the correct tax code to use:
- Identify the right tax code to use for your scenario using our Which tax code should I use? - from 1 January 2021 (UK only).
- View examples of Tax codes to use for popular goods and services.
Default tax codes in your software
To check the default tax codes in your software:
- Click Settings then click Configuration then click the Tax Codes.
A list of the default tax codes appear.
TIP: If the tax code isn't listed in this guide, you can use our handy guide on How to create or amend a tax code to suit your needs.
Some goods and services are taxable for VAT but the vat rate is 0.00%. This rate may only apply in specific situations or it may depend who the customer is. Some examples include:
- Children's clothes and footwear
- Water
- Basic foods
- Books and newspapers
On the VAT Return
- Sale - Net amount affects box 6. VAT amount N/A.
- Purchase - Net amount affects box 7. VAT amount N/A.
Configuration
T1 - Standard rated transactions - Currently 20%
If you're VAT registered, you need to charge VAT at the standard rate on all goods and services unless they come under a different category. Before selecting any rate other than standard, you should check HMRC's website to determine which rate applies to specific circumstances.
On the VAT Return
- Sale - Net amount affects box 6. VAT amount affects box 1.
- Purchase - Net amount affects box 7 VAT amount affects box 4.
Configuration
T2 - Exempt transactions
Some goods and services which VAT isn't charged on. For example:
- Insurance, finance and credit.
- Education and training.
- Fundraising events by charities.
- Subscriptions to membership organisations.
On the VAT Return
- Sale - Net amount affects box 6. VAT amount N/A.
- Purchase - Net amount affects box 7. VAT amount N/A.
Configuration
T4 - Sale of goods to VAT registered customers in EC
NOTE: Northern Ireland only - If you're based in Great Britain (England, Scotland and Wales), and you use Sage 50cloud Accounts v27.1 or above, after the 1 January 2021 you should use T0 for sale of goods to customers in the EC, not T4.
On the VAT Return
- Sales - Net amount affects boxes 6 and 8. VAT amount N/A.
Configuration
T5 - Lower Rate - Currently 5%
This reduced rate of VAT applies to certain goods and services including:
- Children's car seats.
- Home energy.
- Insulation
On the VAT Return
- Sales - Net amount affects box 6. VAT amount affects box 1.
- Purchases - Net amount affects box 7. VAT amount affects box 4.
Configuration
T7 - Zero rated purchases of goods from suppliers in EC
NOTE: Northern Ireland only - If you're based in Great Britain (England, Scotland and Wales), and you use Sage 50cloud Accounts v27.1 or above, after the 1 January 2021 you should use T17, T18 or T19 for purchase of goods from suppliers in the EC, not T7. To find which, please visit our Tax code finder wizard.
On the VAT Return
- Purchases - Net amount affects boxes 7 and 9. VAT amount N/A.
Configuration
T8 - Standard rated purchases of goods from suppliers in EC
NOTE: Northern Ireland only - If you're based in Great Britain (England, Scotland and Wales), and you use Sage 50cloud Accounts v27.1 or above, after the 1 January 2021 you should use T17, T18 or T19 for purchase of goods from suppliers in the EC, not T8. To find which, please visit our Tax code finder wizard.
On the VAT Return
- Purchases - Net amount affects boxes 7 and 9. VAT amount affects boxes 2 and 4. This is notional VAT which cancels itself out.
Configuration
T14 - Import of goods - No VAT
NOTE: Introduced in Sage 50cloud Account sv27.2
On the VAT Return
- Purchases - Net amount affects box 7.
Configuration
T15 - Purchase of services from ROW - Reverse charge
On the VAT Return
- Purchases - Net amount affects box 6 and 7. VAT amount affects boxes 1 and 4. This is notional VAT which cancels itself out.
Configuration
T16 - Purchase of services from ROW - No VAT
On the VAT Return
- Purchases - Net amount affects box 7.
Configuration
T17 - Import of goods - Under import reverse charge threshold
On the VAT Return
- Purchases - Net amount affects box 7. VAT amount affects boxes 1 and 4. This is notional VAT which cancels itself out.
Configuration
T18 - Import of goods - Postponed VAT
On the VAT Return
- Purchases - Net amount affects box 7. VAT amount affects boxes 1 and 4. This is notional VAT which cancels itself out.
To ensure your VAT Return is correct when you post a Postponed VAT transactions, some Automatic postings of postponed accounting are made.
Configuration
For more information, we've created this great What is postponed accounting? guide.
T19 - Import of goods - VAT not postponed
On the VAT Return
- Purchases - Net amount affects box 7. VAT amount affects box 4.
Configuration
T20 - Domestic reverse charge
This refers to goods and services which fall under the VAT domestic reverse charge.
On the VAT Return
- Sales - Net amount affects box 6. VAT amount N/A
- Purchases - Net amount affects box 7. VAT amount affects boxes 1 and 4. This is notional VAT which cancels itself out.
Configuration
T21 - CIS reverse charge - Standard rate
This refers to the domestic reverse charge on supplies of building and construction services.
On the VAT Return
- Sales - Net amount affects box 6. VAT amount N/A
- Purchases - Net amount affects box 7. VAT amount affects boxes 1 and 4. This is notional VAT which cancels itself out.
Configuration
T22 - Sales of services to VAT registered customers in EC
NOTE: If you use Sage 50cloud Accounts v27.1 or above, after the 1 January 2021 you should use T0 for sales of services to customers in the EC, not T22. For more details, please visit our Tax code finder wizard.
On the VAT Return
- Sales - Net amount affects box 6. VAT amount N/A.
Configuration
T23 - Zero rated or exempt purchases of services from suppliers in EC
NOTE: If you use Sage 50cloud Accounts v27.1 or above, after the 1 January 2021 you should use T16 for purchase of services from suppliers in the EC, not T23. For more details, please visit our Tax code finder wizard.
On the VAT Return
- Purchases - Net amount affects boxes 6 and 7. VAT N/A.
Configuration
T24 - Standard rated purchases of services from suppliers in EC.
NOTE: If you use Sage 50cloud Accounts v27.1 or above, after the 1 January 2021 you should use T15 for purchase of services from suppliers in the EC, not T24. For more details, please visit our Tax code finder wizard.
On the VAT Return
- Purchases - Net amount affects boxes 6 and 7. VAT amount affects boxes 1 and 4. This is notional VAT which cancels itself out.
Configuration
T25 - UK Flat Rate scheme only - Purchase or sale of capital items, where the purchase amount is more than £2,000 inclusive of VAT.
On the VAT Return
- Purchases - Net amount affects box 7. VAT amount affects box 4.
Configuration
On the VAT Return
- Sales - Net amount affects box 6. VAT amount N/A
- Purchases - Net amount affects box 7. VAT amount affects boxes 1 and 4. This is notional VAT which cancels itself out.
Configuration
Find out how to set up OSS/IOSS tax codes.
| This article provides general rather than specific guidance to assist all of our customers. We always do our best to make sure that the information is correct but as it's general guidance, no guarantees can be made concerning its suitability for your particular needs. The information is valid at the time of publishing and is provided without any warranty of any kind, express or implied. You should take professional advice if you require specific guidance on your individual circumstances, for example to ensure that the results obtained from using our software comply with statutory or regulatory requirements. For VAT, customs and excise and duties enquiries you should call the HM Revenue and Customs (HMRC) National Advice Service Helpline on 0300 200 3700, contact your local HMRC office or visit their website at www.hmrc.gov.uk In no event will we be liable to you for any direct, indirect, consequential or incidental loss or damage arising out of or in connection with your use of the information provided. The VAT or tax codes used in this article are based on the default or recommended codes set up in the software. These may be different in your software. |
Are you ready for Making Tax Digital?
From April 2022, Making Tax Digital (MTD) applies to all VAT registered businesses. If you're looking for an MTD solution, Sage 50cloud Accounts has what you need.
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