by Nicola Wilson

Note from intelligentVA: We asked Nicola to write a couple of posts for us to explain how to handle VAT in Xero.  In last weeks post we introduced the various codes available.  Remember if you are in any doubt about VAT codes then please talk to HMRC or your Accountant.

I am not an expert on VAT and the following information is based on my understanding and experience in 5 years of bookkeeping.  The aim of this blog is to try to explain which Tax Rate to use in Xero where there is 0% VAT, in a simple way. But VAT is a complex issue and if you are in any doubt at all you should contact the HMRC.

No VAT

When using No VAT in Xero, whatever this is applied to does not appear in the VAT Return. In general this is used for (taken from information supplied by the HMRC);

Money you have personally put into or taken out of the business

Loans, dividends, and gifts of money

Insurance claims

Stock Exchange dealings (unless you are a financial institution)

Wages and salaries

PAYE and National Insurance contributions

MOT certificates

Motor vehicle licence duty

Local authority rates

Exempt Expenses

This is generally used for the following (more details at http://www.hmrc.gov.uk/vat/forms-rates/rates/goods-services.htm);

Sports activities

Betting & Gaming

Admission charges to certain cultural events

Charitable fund raising events

Health services provided by registered health professionals

Education provided by eligible bodies

Postage stamps

Postal services provided by the Royal Mail

Financial services

Insurance

Zero Rated Expenses

This Tax Rate in Xero is applied to all expenses that are to appear on the VAT Return but have 0% VAT or there is no VAT.

No VAT, in this situation, is when purchases are made from suppliers who are not VAT registered or if the VAT receipt is not available.

Zero Rate of VAT applies to some goods and services (more details at http://www.hmrc.gov.uk/vat/forms-rates/rates/goods-services.htm), where the goods are taxable for VAT but the VAT rate is 0%;

Certain building and construction services

Freight

Passenger transport

Printing of brochures, leaflets and pamphlets

Books, maps, magazines, newspapers, printed music and some publications

Baby and child wear

Cycle, motorcycle & industrial helmets and protective boots