Sage Hints & Tips VAT and Tax Codes

With the introduction of electronic filing of VAT returns greater reliance is being placed on accounting software to deliver complete and accurate reports. These in turn rely on users and/or data capture software to recognise the appropriate codes/filters for those reports.  It is essential you ensure your VAT records and software settings are up to date and correctly configured.

Below is a list of the most frequently raised queries we see about VAT and tax codes:

Sales where place of supply is outside EC

  • Sale of goods zero rated use T0
  • Sale of services outside the scope use T9

Supplier is not registered

  • If nature of goods or services are within the scope of VAT then use T2
  • If nature of goods or services are outside the scope of VAT use T9

Staff refreshments (tea, coffee, milk, sugar)

  • Normally zero rated use T0

Hotel accommodation, including meals, for staff

  • Normally standard rated use T1

Mileage allowance

  • Normally outside the scope use T9, but can separate petrol element and recover VAT at standard rate T1

Insurance

  • Exempt use T2, insurance premium tax is not recoverable

Bank interest and charges

  • Financial charges are normally exempt use T2
  • There are exceptions such as an audit letter which is standard rated T1

What is outside the scope of VAT in UK

  • Dividend payments, loan advances & repayments, PAYE and other taxes, net pay, most journals (because they are adjustments not prime entries)

VAT codes are profiled in the configuration editor, accessed through settings on the main toolbar. Some of these codes, such as T0 zero rated, and T1 standard rated, are easily understood. Others have a specific purpose and act as filters for reports such as EC sales list and Intrastat. The default codes are as follows:

T0 Zero rated sales and purchases
T1 Standard rated sales and purchases
T2 Exempt sales and purchases (eg to/from non-registered traders)
T4 Sale of goods to registered business in EC
T5 Lower rate (mainly domestic energy bills but also applies to some products such as mobility aids and energy saving materials)
T7 Purchase of goods from registered business in EC that would be zero rated in UK
T8 Purchase of goods from registered business in EC that would be standard rated in UK
T9 All transactions outside the scope of VAT
T20 EC reverse charge code at standard UK rate
T21 CIS domestic reverse charge at standard rate
T22 Sale of services to registered business in EC
T23 Purchase of services from registered business in EC that would be zero rated in UK
T24 Purchase of services from registered business in EC that would be standard rated in UK
T25 Flat rate capital asset code (only applies if you are using a flat rate scheme and purchase an individual asset for more than £2,000)
T26 CIS domestic reverse charge at reduced rate
For more information

For more guidance and information, please contact Andrew Bagley, or call us on:

01483 416232