by Nicola Wilson

Note from intelligentVA: I was recently chatting to Nicola about the information shown on a VAT Audit report and realised that this is something we haven’t covered on intelligentVA before. Nicola kindly agreed to write a couple of informative posts for us on which codes to use and when.  In next weeks blog post we will look at  using Exempt Expenses, Zero Rated Expenses and No VAT Rates in Xero.  Remember, if you are in any doubt about VAT codes then please talk to HMRC or your accountant.

The figures shown in the VAT Report, for the VAT return, are calculated from the Tax Rates you use in each transaction entered into Xero.

When creating an accounts receivable/payable invoice or a spend/receive money transaction there is an option to choose whether the lines are to be calculated as;

Tax Exclusive

The amount entered is net of VAT.

Tax Inclusive

The amount entered includes VAT.

No Tax 

Whatever is entered will appear on the VAT Audit report but will NOT be included in the VAT Report.

For each line entered on the invoice or transaction, the Tax Rate will default to Tax Rate assigned to the Account (the default Tax Rate can be changed through the Chart of Accounts). The Tax Rate can be edited for the particular line item by clicking in the Tax Rate field and choosing the preferred rate from the drop-down menu.

Note: Where 20% is used in the following, the same applies to 17.5%, 5% etc

20% (VAT on Income)

The VAT portion of this line item will be included in Box 1, VAT on Sales and other Outputs, on the VAT Return. The net amount of this line item will be included in Box 6, Sales excluding VAT.

20% (VAT on Expenses)

The VAT portion of this item will be included in Box 4, VAT on Purchases and other Inputs, on the VAT Return. The net amount of this line item will be included in Box 7, Purchases excluding VAT.

Zero Rated EC Income

The amount of this line item will be included in Box 8, EC Supplies excluding VAT.

Zero Rated EC Expenses

The amount of this line item will be included in Box 9, EC Purchases excluding VAT.

Exempt Income & Zero Rated Income

The amount of these line items will appear in Box 1.

Exempt Expenses & Zero Rated Expenses

The amount of these line items will appear in Box 4.

No VAT

The amount of this line item WILL NOT appear on the VAT Return, although the amounts will be shown in the VAT Audit Report under No VAT.

photo credit: kozumel via photopin cc