Millward, May & Co - Wokingham Accountants
Wokingham Accountants

VAT

VAT Rates

Here is a simplified guide on which VAT rate to use when adding expenses on your bookkeeping software.

For a more detailed guidance on VAT rates please see HMRC's website, VAT rates on different goods and services.

VAT Receipt

To claim VAT you must be able to provide a VAT receipt which has a 9 digit UK VAT number on it - this will be in the following format:

VAT number: GB123456789 OR 123456789

You can check to make sure a VAT number is valid by using the following link: www.gov.uk/check-uk-vat-number

Always check the invoice to see if the supplier has charged VAT or not as if they are not VAT registered there will be no VAT number and no VAT to reclaim.

20% Standard Rate

FreeAgent: 20%

Xero: 20% (VAT on Expenses)

Quickbooks: 20% S (20%)

If the supplier is VAT registered they will usually charge standard rate VAT - they are included in box 4 & 7 of your VAT return. Examples include:

  • Materials & tools

  • Computers

  • Telephone

  • Printing & stationery

  • Advertising

  • Fuel

  • Car repair & service

  • Accountancy fees

5% Reduced Rate

FreeAgent: 5%

Xero: 5% (VAT on Expenses)

Quickbooks: 5.0% R (5%)

Reduced rate means that the goods are still VATable but the rate of VAT is 5% - they are included in box 4 & 7 of your VAT return. Examples include:

  • Power (i.e. gas & electric) for domestic use

  • Energy-saving materials permanently installed in dwellings and buildings (e.g. energy saving boilers)

  • Renovating a dwelling that has been empty for at least 2 years

Zero Rate

FreeAgent: 0%

Xero: Zero Rated Expenses

Quickbooks: 0.0% Z

Zero-rated means that the goods are still VATable but the rate of VAT is 0% - they are included in box 7 of your VAT return. Examples include:

  • Public transportation (train, bus, flights)

  • Books & newspapers

  • Brochures, leaflets & pamphlets

  • Water supplied to households

  • Construction and sale of a new residential building

  • Food essentials (coffee, tea, bread)

Exempt

FreeAgent: Exempt

Xero: Exempt Expenses

Quickbooks: Exempt

Exempt goods or services are expenses where no VAT is charged on the supply. Exempt expenses would still be included in box 7 of your VAT return. Examples include:

  • Insurance

  • Postage stamps

  • Bank charges

  • Health services provided by doctors

  • Business entertainment

  • Supplies from UK businesses that are not VAT registered

  • Goods or services with no receipt provided

Outside the Scope of VAT

FreeAgent: Out of Scope

Xero: No VAT

Quickbooks: No VAT (0%)

These are expenses that are left off your VAT return completely and do not show in box 4 or 7. Examples include:

  • Wages & salaries

  • Pensions

  • Taxes paid to HMRC (PAYE, VAT, CIS, Corporation Tax)

  • Dividends

  • Loan repayments

  • Business rates

  • Charitable donations

Domestic Reverse Charge (CIS)

FreeAgent: Contact Us

Xero: Contact Us

Quickbooks: Contact Us

Domestic reverse charge applies where two businesses are VAT registered and are trading within the construction industry scheme(CIS). Details of domestic reverse charge can be found here.

Reverse Charge (Foreign)

FreeAgent: Contact Us

Xero: Reverse Charge Expenses (20%)

Quickbooks: 20.0% RC (0%)

Some suppliers of services are based outside the UK. For many of these services, the suppliers don’t register for VAT in the UK and so don’t charge VAT. Instead, you as the customer have to apply the reverse charge rules. Receipts or invoices received may have a note on them along the lines of “This supply has been made under the reverse charge scheme”.

For more information, click here.