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VAT in Sage Accounting

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Summary

Information on VAT in Sage Accounting.

Resolution

Here we explain how we handle VAT in Sage Accounting, including how to work with Making Tax Digital (MTD) for VAT.

Making Tax digital for VAT (MTD)

All businesses must keep digital records of their transactions and submit their VAT returns to HMRC. You can do this through MTD compatible software such as Sage Accounting.

HMRC automatically sign-up all businesses for MTD as part of the VAT registration service.

You must tell HMRC that you authorise Sage Accounting to submit your VAT returns. You do this from the Settings in Sage Accounting.

You then submit your VAT returns to HMRC from Sage Accounting when they are due.

Read about how to get set up for VAT >


Supported VAT schemes

You usually select your VAT Scheme when you sign up and enter your basic company information. You must your VAT scheme before you enter any transactions to make sure you include the correct VAT.

We support the following VAT schemes:

If your company isn't VAT registered, select Not Registered.

Read about how to get set up for VAT >


How we record VAT in your ledger accounts

This explains how we record VAT in your ledger accounts. This is so you can understand how this shows on your financial reports and find out how much you need to pay HMRC.

How the VAT element of transactions records in the ledger accounts varies depending on the VAT Scheme that you have used. Here we explain the main differences between Standard VAT and Cash Accounting.


VAT rates to use

Depending on what you buy or sell, there are several different VAT rates which might apply.

To keep things simple, we set up and update the VAT rates for you. Simply choose the appropriate VAT rate for your transaction. The VAT rates you can choose are:

  • Standard - This is the most common rate for transactions. Currently 20%
  • Lower rate or Reduced rate - Used for certain goods and services, such as children’s car seats and home energy. Currently 5%
  • Zero Rated - Used for certain goods and services such as most food and children’s clothes. Currently 0%
  • Exempt – for transactions exempt from VAT, such as postage stamps, financial and property transactions. The net amount still appears on your VAT Return
  • No VAT – for transactions not involving VAT. These don’t appear on your VAT Return

To help you choose the correct VAT rates when you record your sales and purchases, check out our VAT rate guide >

Other VAT rates

You cannot create your own VAT rates (such as the T codes in Sage 50).

Some businesses use a sub-scheme to calculate VAT differently from the Standard 20%, so to record transactions with a different VAT rate:

  • Enter the transaction and select the Standard rate

  • Change the VAT value to the correct amount. 

    This ensures that the transaction shows on your next VAT Return and that the amount of VAT is correct.

Read about VAT rates >


Trading outside the UK

There can be different VAT charges if you buy or sell outside the UK. This depends on what you are trading, and the VAT status of your customer or supplier.

If you sell goods and services to customers outside the UK, you must enter a valid VAT number on their contact record. When entering transactions, choose whether each line on the invoice is for goods or services. We'll then apply the necessary VAT.

VAT on overseas sales >

When you buy goods from outside the UK, you might need to pay import VAT and duty. This applies if the goods you purchase are subject to VAT in this country. Depending on how you manage import VAT and duty, VAT can calculate differently.

Import VAT and duty >

You can use Postponed Accounting to record VAT on these imports, to help improve business cash flow.

Read more about postponed accounting for import VAT and duty for GB businesses >


The VAT Return

You must send regular VAT returns to HMRC. This could be once a month, quarterly or once a year.

We automatically work out VAT when you enter your transactions. The calculations take account of:

  • Your VAT scheme
  • The VAT rate you select
  • The location and VAT number of the customer or supplier the transaction is for

Read about how each value on the return calculates >

Depending on when your VAT return is due, you will need to:

  • Create the VAT return from Sage Accounting
  • Submit it to HMRC

Read about how to create and submit a return to HMRC >

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