A number of the VAT mistakes weve covered in this post come from poorly maintained records. Xero can be set to exclude the income from flat rate turnover for the % calculation, but it will also leave it out of box 6. VAT is constantly evolving. Obviously with regard to leaving on dates that don't qualify on both points 1 and 2 above hmrc may be ameniable to help but will probably default to saying no unless you are adept at arm twisting with regard to the vat office. Griffin is the trading name of Griffin Audit Limited. Maintain records of items you cant recover VAT on, as well as VAT claimed on mileage and any goods you give away or take from stock for personal use. The exception will notify HMRC that the transaction has been accounted for within the current period but refers to a previously filed period. 6.3 says to exclude OTS transactions from the FRS turnover and 4.1 tells you what to include in FRS box 6, on top of FRS turnover. Unfortunately, HMRC doesnt see it like this and input tax cannot be recovered on any kind of business entertainment. Without getting into the full details, essentially the VAT paid on any import does not equate to exactly 20%, and each import will be a slightly different percentage (based on; exchange rate differences, assumed transportation cost and associated VAT, and customs own "VAT Adjustments" (whatever they are)). Any help on how to process this on a VAT return? By clicking "Continue", you will leave the community and be taken to that site instead. However, this isnt always the case. Click Update to generate the VAT report Get our best stories straight to your Inbox. If youre confident about VAT and the various regulations, you can take on this role yourself using a tool like Tides VAT Manager to file quarterly returns directly from your Tide account. As a side issue how does other software handle outside the scope of UK VAT income for box 6? In most cases, providing the error meets HMRCs conditions, you dont need to report it. for more information on creating VAT rates. 7. The VAT Flat Rate Scheme is an alternative way for small businesses to calculate VAT due to HMRC. Check out our guide to VAT rules and rates on exports . Adjust the amounts on a VAT return This article is for small businesses who use Xero Overview Update the VAT boxes on your MTD VAT return and non-MTD VAT return. You can correct errors on any VAT return that relates to an accounting period that ended within the last four years if they: Making an adjustment is a straightforward process that you can do in one of two ways: For example, lets say a small business owner called Rachel is VAT registered under the standard VAT scheme and submits VAT returns every quarter. Perform the following steps to complete a VAT return: 3. 6. Don't invite HMRC letters. He works in the construction industry and is Gross Status. Tide is not a bank. It's not just 5. They will then pass on the VAT they collect to the government, typically on a quarterly basis, via a VAT Return. Top Tip: If your business exports goods and services, its important you learn how export VAT is charged in the EU and the rest of the world. If you have any questions or need support, dont hesitate to reach out to our support team who are available 24/7. Instead, the VAT due on imports should be added to box 1 of the VAT Return after the flat rate calculation has been completed. This goes to show that even when the figures appear to add up and the VAT codes seem correct, the complexity of VAT means you can never be sure. This means that she over-claimed VAT in the amount of 300 in the VAT period ending March 31st. See below, or. Hi Teresa, thank you so much for getting in touch. is regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business If you can please raise a case here someone will get in touch with you to help answer your questions as clearly as possible. I have always done my application to leave via email application and as of yet this has alwasy worked albeit response is slow - the only annoying bit here is you dont get get an email confirmation to say your emaoil has ben received - not great bearing in mind it may be 4 months before you here from them - thankfully my requests do seem to be on file at hmrc even if not actioned as of yet. Following on from my explanation of the Flat Rate Scheme for VAT, this video looks at how it works in Xero. The first VAT Return that will offer PVA will be due around 7 March 2021, for any period ending 31 January 2021. I have a client who is registered on the flat rate scheme for VAT. 20%) but you simply pay over a reduced percentage (say 14.5%) to HMRC. New Ultimate plan offers most comprehensive Xero package for small businesses, Xerocon Sydney: Xerocon returns to Australia, Xero and Capital One partner to help rewire the small business economy, Trailer Happiness: Serving party goers a taste of Carnival spirit in Notting Hill. We have separate instructions for our MTD VAT return or Flat rate MTD VAT return. Your chosen VAT scheme also affects how to report that VAT on your VAT return (namely whether to report gross or net income) as well as how often you can reclaim your input tax. Visit our dedicated site for more resources, webinars and updates to help you navigate the COVID-19 pandemic. He may well need to leave the FRS. This was very well advertised in the months leading up to introduction of the DRC. Overview 2. we might record 25 VAT on a 110EUR (90) bill.Therefore, we need to make these VAT adjustments as our VAT return MUST agree with the PVA statement (so I'm told).Do Quickbooks plan to create similar functionality as Xero to allow easy posting of PVA VAT adjustments?Thanks! But obviously this amount is too high as historically he has been @ 16.5%. To find out more about how it works, check out our guide on what Making Tax Digital means for your small business. Allowing a business to withdraw from a retrospective date in these circumstances would undermine the purpose of the scheme". Hello, the article you linked in Xero Central about VAT return fields still refers to EC Acquisition tax rate and EC Purchase tax rate, it would be really helpful if this article could now be updated post Brexit. Tip We have separate instructions for our standard rate MTD VAT return and non-MTD VAT return. At that point I stop looking and, of all things, would not start with OTS transactions. For example, if a VAT-registered business sells a widget for 1, they will charge the customer 1.20 (assuming the 20% rate applies). All rights reserved. But obviously this amount is too high as historically he has been @ 16.5%. By knowing where mistakes often take place you can easily avoid making them yourself. Any help on how to process this on a VAT return? Is that interpretation wrong? This table explains each scheme in more detail. The new rate should be used instead of the 5% reduced rate that is in effect until 30 September 2021. We just need to be able to enter the correct PVA VAT for each transaction/quarter without a messy workaround. "As outside the scope they have, by definition, not been "accounted for" They mean accounted for as a VAT entry.". Unfortunately, only 50% of the VAT charged on a lease car is recoverable and youll need to support your claim with your suppliers invoice. Understanding the 9 most common VAT return mistakes that small businesses make, as well as how to avoid them, will put you in a much better position to avoid making them yourself. have a UK business that is registered for VAT, import business goods to the UK valued at more than 135 (exclusive of VAT), elect to use PVA on the customs declaration, use your own VAT registration and EORI numbers on the customs declaration, We have developed a PVA update in Xero. You have up to four years to put things right. Hi Jo thank you so much for getting in touch. From 1 January 2021, controls will be placed on the movement of goods between the UK and the EU. https://www.gov.uk/guidance/vat-reduced-rate-for-hospitality-holiday-accommodation-and-attractions#accounting-for-supplies-that-straddle-the-temporary-reduced-rate. The VAT Flat Rate Scheme. Box 6 is the problem for me. You can find a full list of UK VAT rates on different goods and services on the GOV.UK website. Similarly, HMRC doesnt allow VAT to be recovered on the purchase of a car unless you can prove that it will be used exclusively for business reasons. Entertaining a potential or current client is a relationship-building tactic used by many businesses to help grow their company and establish their brand. About adjusting your VAT return Adjust the VAT box amount only Adjust the VAT box amount by adding an accounting transaction Expert guide to CIS and new reverse charge rules, Getting started with client engagement letters, A fool-proof marketing strategy for accountants. Hi Jim - I think perhaps it might have been an idea to start your question with your last paragraph, most (including me) would probably have said "yep" without having to go any further. If you have any questions or need support, dont hesitate to, who are available 24/7. Apply a Postponed VAT Accounting (PVA) adjustment. It can be really great for people like me who are looking for grabbing more knowledge about it. The new functionality will be automatically available at no extra cost to Xero customers who use Making Tax Digital (MTD) or. Given that many of the major and common purchases you make for your business include the standard rate of VAT (20%), its easy to assume that VAT can be recovered on every business expense. PPS holds an amount equivalent to the money in Tide current accounts in a safeguarding account which gives customers protection against PPS insolvency. 400 if you submit a paper VAT return, unless HMRC has told you youre exempt from submitting your return online. The links you have provided are all for QB Online. https://www.gov.uk/guidance/the-vat-domestic-reverse-charge-procedure-no Interco transaction on asset under construction, Filing options for small companies up for change. You may wish to ask your adviser to do this sense check for you. Regarding box 6, it is only one sentence which I am bothered by (see in bold text below): Box 6 Total value of salesEnter the turnover to which you applied your flat rate percentage, including VAT. Check the status of your filed VAT return with HMRC. To manage this change, HMRC has established a new process called Postponed VAT Accounting (PVA). The There are also practical considerations as to how your accounting software will deal with the change and how you prepare the VAT Return. 1. HMRC has announced a change to its current temporary reduced rate of VAT for hospitality, holiday accommodation and attractions industries. I can send some feedback through the software. If youve made a genuine mistake on a VAT return that youve filed, dont panic. Your email address will not be published. Tide is also authorised and regulated by the Financial Conduct Authority in relation to its credit and insurance broking activities (firm reference 718743). By using xero.com, you accept our cookie notice terms. More information on working out the VAT due on sales can be found here VAT Notice 700/12, section 4.1 but as this change is potentially less favourable businesses would be wise to review whether the flat rate scheme is still the best option. It is a tax imposed by the government that is collected by VAT registered businesses at every stage in the production line. It may no longer be for him. Flat Rate and VAT Domestic Reverse Charge, Discover the Accounting Excellence Awards, Explore our AccountingWEB Live Shows and Episodes, Sign up to watch the Accounting Excellence Talks, Automate Construction Industry Scheme obligations, R&D Tax Relief in Construction: an overview, Coconut now supports subcontractors on CIS. While theres no sure-fire way of preventing mistakes, you can reduce your chances of needing to make an adjustment by understanding VAT and having a system in place that makes filing returns as stress-free as possible. This is usually received around three weeks after the end of the month you received the goods in the UK. VAT, or value-added tax, is relatively straightforward in theory. Getting started with client engagement letters, A fool-proof marketing strategy for accountants, How digitalisation will help grow your practice, Filing options for small companies up for change. Have you looked here for a Plain English guide? registered office is 15 Victoria Place, Carlisle, CA1 1EW. Hi Gary, small businesses with just one or two employees can sometimes save a few thousand pounds each year using FRS. See below, or check out Xero Central for more information on creating VAT rates. Further, there are several goods and services that are either VAT exempt (or qualify for partial exemption), out of the scope of VAT entirely, or charged at a reduced-rate or zero-rate. This is a commonly known debt relief rule. I hope it's in order to generate a new post for an old chestnut (its age means it no longer invites responses). That's what the bit of the manual you quoted says, a retrospective withdrawal should be refused when the date requested falls within a return period that has already been filed. If your business has recovered input tax on invoices received from suppliers, but the payment to the supplier remains outstanding after six months, youre required to repay that input tax to HMRC. Required fields are marked *. All you need to do is write to VAT and let them know. Top Tip: Before you continue, its important that you understand the fundamentals of VAT, which you can learn about in our guide to everything you need to know about VAT . Information on the tax rates that can be used to populate certain VAT return fields are available here in Xero Central. You can simply correct it by making adjustments on your next VAT return. Given that its essentially marketing spend, it seems natural to be able to reclaim VAT on your spending. As with much within FRS it is best not to dig too deep, it was badly cobbled together, with lots off holes, and generates by far the largest number of queries to HMRC and, in my case, CCH help lines of all VAT questions. He works in the construction industry and is Gross Status. Introduction How the Flat Rate Scheme for VAT works in Xero XU Academy 6.25K subscribers Subscribe 80 Share 3.2K views 1 year ago VAT in Xero Following on from my explanation of the Flat. Don't create work for yourself needlessly. Type in your feedback or product suggestions. . Xero will then populate your VAT Return automatically. On the Flat Rate Vat scheme, your day-to-day processing remains unchanged and VAT calculates at the standard, lower, exempt, zero rated and No VAT rates as normal. We have the VAT codes set up no problem, thanks (we used your page https://quickbooks.intuit.com/learn-support/en-uk/accounting/how-to-create-pvat-20-and-0-codes-in-qu ). To improve your own, take a look at our beginners guide to bookkeeping . HMRC advice was include ALL sales in box 6, or you risk an enquiry, even if that doesn't make sense as the sales are "outside the scope of UK VAT". Box 1 would then show 5,000. Transactions outside of regular trading patterns such as cash sales, property income, management charges or barter transactions can often be overlooked or given the wrong treatment, resulting in too little, too much or no VAT being reclaimed. What you would need to do is enter the transaction with the correct date, ie the date that falls within the previous filing period, and QBO will account for any VAT due on your current return as an exception. It's nice to have you here in the Community, @klous1. Keep copies of all VAT invoices and self-billing agreements (invoices prepared by the customer on your behalf). To do this go to Settings>General Settings>Financial Settings. To reclaim VAT on any business expense, you must provide evidence in the form of a VAT invoice. By subscribing you agree to receive marketing communications from Tide. When creating a VAT Return in Xero next year, youll just need to select the PVA option button and add the amount from your MPIVS. However, reaping the rewards whilst staying VAT compliant relies on you completing accurate VAT returns a task that isnt always straightforward. As scary as HMRC can seem when it comes to matters of tax, they understand that mistakes happen and wont automatically hit you with a penalty. We use cookies to make your experience better. registered office is 15 Victoria Place, Carlisle, CA1 1EW. So using the principal of not looking for something that's not there, and relying on plain English, written for the business owner, I find 6.2 & 6.3 of 733 and 4.1 of 700/12 in harmony. Armstrong Watson is a trading style of Armstrong Watson LLP, Armstrong Watson Audit Limited and Armstrong Watson Purchases Record all your purchases as No VAT. The updates and changes that we implement are largely the results of the suggestions provided by users, just like yourself. When preparing her year-end accounts in December, she noticed that she recorded the same purchase invoice for 1,500 plus VAT (20%) twice: once in February and once in March. Will the VAT due on these be invoiced by freight company as currently for ROW suppliers and reclaimed via the VAT Return when backed up by a C79? If you are on the flat rate scheme for VAT, but not quite sure how to complete the return in Xero, this is the guide for you! invoices and receipts) so that you can easily pinpoint figures. If you dont have a Xero Certified Adviser, you can find one here. Tide Platform Limited (Tide) designs and operates the Tide website and app. This will help HMRC calculate your Monthly Postponed Import VAT Statement (MPIVS), which will be available in your HMRC portal. Armstrong Watson Financial Planning & Wealth Management is a Hello Klous1, thanks for coming back to us here. All Rights Reserved. Hold off on any claim until the C79 certificate proves you are the owner of the goods. The article was very well written and providing xero ready for uk vat change. For VAT Return periods starting after 1st June 2022, import VAT accounted for using postponed VAT accounting (PVA) should not be included in your flat rate turnover. You cam leave the FRS whenever you want. th QuickBooks Online, QuickBooks Self-Employed, QuickBooks ProAdvisor Program, QuickBooks Online Accountant, https://central.xero.com/s/article/Adjust-the-amounts-on-a-VAT-return#ApplyaPVAadjustment. Keep details of the error (e.g. Reporting - it just keeps getting better! Make sure to highlight every new or unusual transaction so that you can be sure that its given the correct treatment. VAT on fuel purchased by business directors, partners and employees for business purposes can be reclaimed on a VAT return. The scheme isn't to save VAT registered business money, but to save them the hassle of keeping proper records. You have clicked a link to a site outside of the QuickBooks or ProFile Communities. Required fields are marked *. Do I need to charge VAT to client for Freelancer? Theres a few changes to your VAT rates required so please take care to check with your accountant to ensure you know the rules, such as the VAT reporting requirements you need to be mindful of if you switch mid-quarter etc., and then switch on the FRS from the Financial Settings page in Xero. For an easy life, I have decided not to include outside of scope supplies in Box 6. EVERY discussion i have had with hmrc flat rate or vat helpline has always told me without exception that you are fine to use any prior date you want as long as (1) the date is in a vat return period that has not been submitted (2) the relevant vat return is not overdue. Lastly, if youre a business using different software products such as hospitality products that integrate with Xero, please check if theyve got capabilities to deal with reduced VAT sales and purchases. DRC has been around for a while now so you should really have looked at this before, can not see any benefit from being on the FRS. not a deliberate error). Were updating Xero with the necessary changes, to help your business or practice adapt. Flat rate and old non-MTD VAT Returns will not have PVA functionality. Perhaps other software has a VAT flag for supply of overseas services. - if this client is permanently on the 16.5% rate they are almost certainly better of swapping to normal vat unless their expenses are almost non existent or they hate the other way of working out vat. If youre using the flat rate VAT scheme, the amount entered into box 6 should be the gross income youve applied the flat VAT percentage to. Any such supplies youve had and made should be accounted for under the reverse charge provisions.https://www.gov.uk/guidance/the-vat-domestic-reverse-charge-procedure-no khalm0 Where VAT becomes more complicated is when it comes time to file your VAT return. MyRetirement is a trading style of Armstrong Watson Financial Planning Limited. activities. Top Tip: Good bookkeeping helps you keep tabs on your day-to-day financial data, monitor your cash flow and evaluate your success. Well explain the various VAT schemes in more detail in a later section. For further information visit fscs.org.uk. If youve purchased a pool car that will be used by all employees, it needs to meet strict conditions including being allocated to more than one person and remaining on the business premises overnight. The first VAT Return that will offer PVA will be due around 7 March 2021, for any period ending 31 January 2021. His employer are now not paying the VAT on his invoices and paying them directly to HMRC. However, It appears that may not be the correct thing to do. By using xero.com, you accept our cookie notice terms. A common VAT return mistake is when fuel purchased for personal use is claimed alongside fuel purchased for business travel, which often happens when a vehicle has dual business and personal use. If youre using the cash accounting scheme or the standard accounting scheme, box 6 should include your income net of VAT. Youll then be notified of whether the amount you calculated is correct and how much interest or tax you owe. So I should post invoices received from EC Suppliers with VAT Code Zero Rated Expenses as I would for invoices from non-EC Suppliers? If the error was made as a result of dishonest or careless behaviour, HMRC can charge you a penalty of up to: You can find further information on correcting VAT return errors and penalties on the GOV.UK website. "The figure he needs to put on the VAT return is amount of his sales including VAT (which are 0% rated on the DRC invoices). Some of Tides members also hold e-money accounts provided by Prepay Solutions (PPS) (account sort code is 23-69-72). Tide is about doing what you love. Reporting - it just keeps getting better! All rights reserved. 5. Flat rate and old non-MTD VAT Returns will not have PVA functionality.