MTD for VAT will be extended to all VAT registered businesses from 1 April 2022, as set down in Statutory Instrument 2021/986, which was published at the beginning of September 2021.
Even if you use a spreadsheet, the correct treatment of all VAT transactions is vital to ensure full compliance.
Outside the scope
Outside the scope of VAT has more than one purpose. Salaries, loans and bank interest are not supplies for VAT purposes and such transactions should not appear on the VAT return.
But some transactions are “outside the scope of VAT” but do need to be recorded on the VAT return. If the business purchases reverse charge services from overseas, these invoices are without VAT, but fall under the reverse charge procedure whereby you treat the invoice as both a purchase and a sale, declaring output (box 1) and input tax (box 4) on the VAT return, as well as populating boxes 6 and 7. So use the reverse charge code in the accounting software to ensure correct treatment applies.
Likewise, a business may make supplies of services to non-UK business customers, the VAT treatment of “sales of services to overseas businesses” is outside the scope of UK VAT, but we still need to record the sale on the VAT return (box 7, sales excluding VAT).
HMRC Notice 700/12 at paragraph 3.7 details what transactions should go in box 6 and that paragraph notes: “supplies which are outside the scope of UK VAT as described in place of supply of services (VAT Notice 741A)” should be included in Box 6.
It is common to see reverse charge services coded as zero rated, which is a logical, but try to use the codes recommended by the accounting software, to ensure consistency.
For postponed VAT accounting (PVA), each system is a little different, usually requiring manual adjustment. The tax code for PVA in QB/Sage Online posts the net to box 7, and the VAT equivalent to boxes 1 and 4. However, some invoices will be for duty and VAT only with a separate invoice for the goods imported, so an additional line with the net amount as a negative may be required to zero down the net, to then leave just the VAT and relevant duty as payable. There may be other solutions, this is just one example.
HMRC and cloud software suppliers promote how MTD will make everything simpler and more compliant. But that glosses over the fact that there is still a certain level of required knowledge in order to correctly code and account for sales and purchases in the accounting system.
Which codes do i use?
This document explains the codes used in Liquid Cloud Accounts, Pastel Partner and Sage 50 – please click the link to read it.
If you require any further assistance, please log a support ticket by emailing email@example.com
The Liquid Team