When you’re entering your invoices and bills into your accounting software, you’ll need to know the right VAT category to class each transaction against.
When you fill in your transactions you’re asked:
- Is it VATable?
- Is it zero-rated?
- Is it not applicable for VAT?
- Is it exempt from VAT?
If you’ve never filled out your VAT return before, those categories can sound a little confusing. So let’s take a look at what each of these categories mean.
- VATable = a transaction on which VAT is due, either at the standard rate of 20% or one of the reduced rates set for specific products and services.
- Zero-rated = a transaction where it falls under the VAT legislation, but the tax itself has been waived; for example, basic foods and kids’ clothes. This is also where you’d account for purchases from non-VAT registered suppliers.
- Not applicable = any transactions which have no VAT element; for example, wages or payments to HM Revenue & Customs (HMRC) etc.
- Exempt = a transaction for certain exempt supplies that HMRC has made exempt from VAT. For example, insurance payments are exempt and don’t attract any VAT.
As you can see, what’s VATable and what’s exempt can start to get rather complicated! So there’s real value to working with an accountant who’s an expert in VAT and can help you to code those transactions perfectly every time.
If you’d like a helping hand with your VAT admin, give us a call on 01454 300 999, or drop an email to email@example.com
Find out more about the FD Works’ approach to finance at fd-works.co.uk