February 2014 / PhreeBooksR36RC3
Author – Charles
Special thanks to – Dave, Rosta, Rene, Julius and BillJ
DraftDisclaimer – VAT is a complicated area of UK and EU taxation and you need to consult with your Accountant to ensure it’s correct application. You use anything on this page at your own risk. The author cannot vouch for the accuracy and reliability of the information contained in these web-pages. This information should not be relied upon as a substitute for formal advice from your Accountant. Neither PhreeBooks or the author will be responsible for any loss, however arising, from the use of, or reliance on any information contained in these website pages.
In the UK we have one Tax Authority (HMRC) to whom we report on multiple VAT Rates and Types; sales taxes and purchase taxes are reported separately.
A ‘VAT Return’ needs to be submitted (normally quarterly) to HMRC if your annual turnover exceeds approx. GBP 81,000 pa (2014/15) of taxable sales.
HMRC VAT100 : The VAT Return
Box 1 – VAT due, on sales
Box 2 – VAT due (but not paid) on acquisition of GOODS from other EU countries
Box 4 – VAT reclaimable, on purchases
Box 6 – Total sales excl. VAT (all sales) including EU GOODS & SERVICES
Box 7 – Total purchases excl. VAT
Box 8 – Total value of GOODS sold to other EU countries – against supplied VAT number
Box 9 – Total value of GOODS purchased from other EU countries
Sage ‘T-number’ VAT Analysis Codes
Sage utilise ‘T-number’ VAT analysis codes to identify the different VAT categories for transactions. These are comprehensive, widely used and well understood by most UK Bookkeepers.
T0 – 0% Zero rate
T1 – 20% Standard rate
T2 – 0% Exempt
T4 – 0% EU sales of GOODS – VAT registered -> ECSL
T5 – 5% Lower rate
T7 – 0% EU Zero rate purchases of GOODS
T8 – 0% EU Standard rate purchases of GOODS – ‘Reverse charge-GOODS‘
T9 – 0% Outside the scope of VAT … Not entered anywhere on VAT-100.
T20 – 0% Reverse charges (Carousel Fraud) – a specialist ‘Reverse Charge’
T22 – 0% EU sales of SERVICES
T23 – 0% EU purchases of Zero rated or exempt SERVICES
T24 – 0% EU purchases of Standard rate SERVICES, ‘Reverse Charge-SERVICES‘
- ANY entry in Box 8 (T4) will prompt an immediate VAT101 – ECSL request (EC Sales List).
- The list of Sage ‘T-numbers’ above is concerned largely with VAT registered businesses.
VAT Set-Up in PhreeBooks:
To keep things simple in this HowTo, I am going to limit the VAT analysis categories to:
None – 0%, Outside the Scope (sales and purchases) … already the default in PhreeBooks
VAT A – 0%, ‘Zero Rate’ (sales and purchases)
VAT B – 20%, ‘Standard Rate’ (sales and purchases)
VAT C – 0%, ‘Exempt’ (sales and purchases)
VAT D – 0%, EU ‘Standard Rate’ purchases of goods – VAT number supplied (purchases only)
VAT E – 0%, EU sales of goods – cust. VAT number verified & printed on invoice (sales only)
- Create your ‘Tax Authority’ in Vendors. Fill in the contact details etc.:
VENDORS > New Vendor,
00-HMRC-VAT … in ‘Vendor id’ and ‘Name/Company’
- Create 2 new GL accounts in the CoA – VAT Receipts (on sales) and VAT Payments (on purchases)
COMPANY > Module Administration > PhreeBooks Module > Chart of Accounts
- Create 5x ‘Sales Tax Authorities’ and 5x ‘Purchase Tax Authorities’:
COMPANY > Module Administration > PhreeBooks Module > Sales Tax Authorities
COMPANY > Module Administration > PhreeBooks Module > Purchase Tax Authorities
Fill in the pop-up, including the appropriate tax rate e.g. 0%, for VAT A – ‘Zero Rate’ . Select the correct GL account – VAT Receipts / Payments.
However, “Vendor to submit funds to” should be blank.
- Create 5x ‘Sales Tax Rates’ and 5x ‘Purchase Tax Rates’, selecting the corresponding ‘Sales Tax Authority’ and ‘Purchase Tax Authority’:
COMPANY > Module Administration > PhreeBooks Module > Sales Tax Rates
COMPANY > Module Administration > PhreeBooks Module > Purchase Tax Rates
For each Sales/Purchase Tax Rate you will need the corresponding Sales/Purchase Tax Authority (including for all the 0% rates). Don’t forget to make them both for Sales and Purchases (if appropriate). They needs to be set up separately, of course.
Currently in the UK, there is only one VAT ‘Tax Authority’ (HMRC) to whom we report and pay Sales Tax – therefore only one VAT tax rate is applied on each sale/purchase. Thus there will be strict 1:1 mapping between ‘Sales Tax Authorities’ and ‘Sales Tax Rates’.
Verifying EU VAT Numbers
All EU VAT numbers need to verified as authentic before goods or services are supplied VAT free within the EU.
To check a VAT number and get a “Consultation Number“, go to http://ec.europa.eu/taxation_customs/vies/
If you fill in the ‘Request Member State’, ‘VAT Number’ and ‘Verify’, you will get just the verification. If you also fill in your Member State and VAT Number above it, you will get a “Consultation Number” along with the verification result.
If a VAT inspector ever questions whether you made an effort to verify your customer’s VAT number, the production of the Consultation Number is traceable proof that you (identified by your VAT number) verified their VAT number on a specific date.
Inventory, Customer & Vendor ‘Default’ Sales Tax:
- Each of Inventory, Customer and Vendor details page will allow a ‘default Sales Tax’ rate to be set from the drop-down list of user-defined Sales Tax Rates.
- Customer and Vendor default Sales Tax rates take precedence over Inventory default Sales Tax rates.
Handling ‘Customs & Excise’ VAT payments – VAT only:
- It is normal to have to pay the VAT due on the import of goods to ‘Customs and Excise’ or to a Freight Forwarding agent who makes the payment on your behalf.
- This will normally need to be recorded as a ‘VAT Only’ payment, using
None – 0%, Outside the Scope
- When the PhreeForm ‘VAT Reports’ are run at the end of the VAT reporting period, one of the categories detailed will be payments made/received ‘None – 0%, Outside the Scope of VAT’. Transactions that are ‘outside the scope of VAT’ are not reported on the VAT100.
Reporting and Recording Payment of VAT:
- The PhreeForm ‘VAT Reports’ – one for input and one for output tax, will show the totals grouped by tax rate.
- Mapping of VAT Analysis code totals -> VAT100 ‘Boxes’. Special care needs to be taken to get this right.
- Create VENDORS > Purchase/Receive to Vendor HMRC, dated within and at end of VAT reporting period in question.
- Enter into the Purchase/Receive a line-item per Purchase Tax and Sales Tax rate applicable, selecting the corresponding GL account for the payment to be recorded against.
- The total of the Purchase/Receive should equal the net amount outstanding to be paid to the relevant Tax Authority (e.g. HMRC)
- NOTE: the appropriate VAT-code for the recording of VAT payments to/from HMRC is ‘None – 0%, Outside the Scope’
- Rounding errors will need to be reported as ‘None – 0%, Outside the Scope’
- They would normally be written-off to the P&L
UK VAT Invoice Requirements:
A UK VAT invoice must show:
- an invoice number which is unique and follows on from the number of the previous invoice – if you spoil or cancel a serially numbered invoice, you must keep it to show to a VAT officer at your next VAT inspection.
- the seller’s name or trading name, and address
- the seller’s VAT registration number
- the invoice date
- the time of supply (also known as tax point) if this is different from the invoice date.
- the customer’s name or trading name, and address
- a description sufficient to identify the goods or services supplied to the customer
- the rate of any cash discount
- the total amount of VAT charged expressed in sterling
For each different type of item listed on the invoice, you must show:
- the unit price or rate, excluding VAT
- the quantity of goods or the extent of the services
- the rate of VAT that applies to what’s being sold
- the total amount payable, excluding VAT
If you issue a VAT invoice that includes zero-rated or exempt goods or services, you must:
- show clearly that there is no VAT payable on those goods or services
- show the total of those values separately
If you make retail sales and you make a sale of goods or services for £250 or less including VAT you can issue a simplified VAT invoice – see the HMRC website for a guide on simplified VAT invoices.
VAT-Invoice Within PhreeBooks:
In the next release (PhreeBooksR37) there will be a VAT-Invoice included as a user-installable option. You must check whether the details of this invoice Form meet the requirements of your local tax authority (see above).
The VAT-Invoice will be held here:
This VAT-Invoice has four main difference from the default (US centric) invoice Form:
- The VAT Rate is shown for each invoice line item
- There is the option to automatically include the customers VAT number on the VAT-Invoice. This is one of the requirements when making cross-border transactions between VAT registered businesses within the EU. The ‘Resale License Number‘ (Customers details page) field is used to hold the customers VAT number which is then reproduced on each sales invoice.
- The PhreeBooks user’s VAT number is included on each invoice.
- The Shipping cost is shown above the Total VAT (Sales Tax) as most Shipping charges for items delivered within the EU attract VAT (even if the %Rate is zero – welcome to the EU !).
Import the VAT-Invoice Form using the PhreeForm Import Tool from the available list, or copy the file to your desktop and import it using PhreeForm single file import tool (available on PhreeForm Import Tool page).
- TOOLS > Reports > Import (PhreeForm Import Icon – circled above) > “Customers – Forms – Invoices/Packing Slips“
- You will see:
Invoice-VAT – Sales/Invoice Form with payments including VAT …
- Import Selected Report
This VAT-Invoice will now show up in the pop-up of available .pdf ‘Invoices/Packing Slips’:
To delete any unwanted available .pdf ‘Invoices/Packing Slips’:
- The PhreeBooks-User will need ‘Full’ permissions set (COMPANY > Users)
- TOOLS > Reports > Customers (‘Document List’ tree ) > Invoices/Packing Slips
- From the list on the right-hand side of the page, under ‘Details’, select and delete.
Changing VAT Rates:
- VAT rates can and do change. This is inevitable and you have to expect it.
- PhreeBooks’ flexibility means that it can handle this with ease.
- You should not delete or amend any record in ‘Sales Tax Authorities‘ once a transaction has been entered using it.
COMPANY > Module Administration > PhreeBooks Module > Sales Tax Autorities
- However, the various Sales Tax Rates (as shown in the selectable PhreeBooks drop-down menus – for Sales Invoices and Purchase/Receive ) can have their description amended e.g. from
‘VAT B – 20%, Standard Rate‘ to
‘VAT B – 21%, Standard Rate‘
and have any one of the selected ‘Sales Tax Authorities’ (as defined in
COMPANY > Module Administration > PhreeBooks Module > Sales Tax Autorities)
deselected and another selected or, one or more created and added.
- PhreeBooks is designed to handle multiple VAT Tax Authorities with multiple VAT rates. This would, of course, create multiple composite Sales Tax Rates and Purchase Tax Rates.
PhreeForm ‘VAT Reports’ – one for input and one for output tax:
Please, if you use this page to set up your Sales Tax / VAT, I would be grateful for feedback (positive or negative in the forum)
Please post any queries or suggestions to the Forum