Article ID: 2027008 Last updated: 26 July 2022
VAT codes are used to track VAT paid to and by your business. Each VAT code represents a particular type of VAT, which is used to calculate VAT on your transactions.
AccountEdge contains a list of VAT codes that can be used in a variety of situations. For example, by default, VAT Code S (Standard) might be used in most situations where standard 20% VAT were being applied to a transaction.
This support note aims to clarify the use of the following AccountEdge VAT Codes:
• E - Exempt
• Z - Zero rated
• N-T - No Tax
Note: This article provides clarity for the use of Exempt, Zero Rated and N-T codes, which are similar and often confused.
AccountEdge also includes VAT codes for other VAT treatments, however this article will exclude the use of these other types of VAT codes (Postponed VAT for imports, Domestic Reverse Charge, Reverse Charge for EU/Rest of World Service Purchases, EU Purchases and EU Sales for goods shipped via Northern Ireland).
Before recording your transaction in AccountEdge, you should determine how the transaction should be treated for VAT.
The following HMRC guidance will be useful in helping you make your determination:
If you are in doubt about the required VAT treatment for a particular transaction, please contact HMRC General Enquiries and your accountant for clarification.
Whilst you await clarification, unless you have clear indication that a transaction is outside of the scope of VAT reporting, our general recommendation would be to include the transaction in your VAT return using VAT Code E or Z, where no standard, lower rate VAT or other VAT types excluded in this article are applicable.
If you have not received clarification about the transaction from HMRC before your next VAT return is due, then including the transaction in the VAT return would be preferable. If you subsequently receive clarification from HMRC that the transaction should have been treated in an alternative manner, a correction can be made in a subsequent VAT return.
Once you have determined whether your transaction is to be treated as Exempt, Zero-rated, or Outside the scope of VAT, you can record the transaction using the appropriate VAT code.
Use of VAT code E (Exempt) on AccountEdge will include the output value or input value on the VAT return, although the VAT collected or VAT paid values will be zero.
This VAT code should be used when it is determined that the goods or service in question should be treated as 'Exempt' from VAT.
Examples of exempt goods and services:
You do not include sales of exempt goods or services in your taxable turnover for VAT purposes, and if you buy exempt items, there is no VAT to reclaim.
Exempt items are different from zero-rated supplies. In both cases VAT is not added to the selling price, but zero-rated goods or services are taxable for VAT - at 0%.
Note: Although exempt items are categorised differently to zero-rated items, both VAT codes produce the same effect on the VAT return.
Use of VAT Code Z (Zero-rated) on AccountEdge will include the output value or input value on the VAT return though the VAT collected or VAT paid values will be zero.
This VAT code should be used when it is determined that the goods or service in question should be treated as 'Zero-rated 0%' for VAT.
Examples of zero-rated goods and services:
Note: Although zero-rated items are categorised differently to exempt items, both VAT codes produce the same effect on the VAT return.
Use of the N-T VAT code on AccountEdge will exclude the transaction from being included in the VAT return entirely, so no output value or input value will be reported.
This VAT code should be used when it is determined that the goods or service in question should be treated as 'Outside the scope of VAT'.
Examples of transactions Outside the scope of VAT:
Note for Flat Rate scheme users
If you use the Flat Rate scheme, then no figure is required to be reported for the total value of purchases in Box 7 of your VAT return, so you would use the VAT code N-T for most purchases, even if the transaction would normally be zero rated, exempt or standard rated, unless you need to report and claim VAT on capital goods costing more than £2,000 (including VAT), and any reverse charge transactions.