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Partial VAT (**BETA**)

MTD for Accounting Seed provides support for Partial VAT with some additional Tax Groups.

Sales VAT Codes (supplies)

Most Sales Tax Groups will be treated as ‘Taxable Supplies’ but there are some spcial Tax Groups to handle ‘Exempt Supplies’:

  1. Exempt (VAT on Sales)
    This is used to record any Exempt supplies
  2. Export
    This is the standard VAT Code for exports and should be used for ‘specified’ supplies or ‘foreign’ supplies – those that would be taxable if made in the UK
  3. Exempt Export
    This is used for exports that would be exempt if made in the UK

Purchase VAT (input tax)

There are two ways you can handle purchases that relate to ‘Exempt’ supplies. Suppose you have a purchase invoice for £100 and £20 VAT:

  1. The simples way is to use ‘Exempt (VAT on Purchases)’ and enter £120 as the Net value with zero VAT. All the £120 is posted to the expense account (eg: ‘Cost of Sales’)
  2. An alternative approach is to use ‘20% Non-Recoverable VAT’ and entering £100 net with £20 VAT calculated. This will post £100 to ‘Cost of Sales’, the expense account and £20 VAT to ‘Non-Recoverable VAT’

With option 1 the Gross value is added to Box 7, but with option 2 the Net value is added to Box 7.

Purchase VAT Codes

  • Standard (20%) VAT
    Use this for expenses that wholly relate to ‘Taxable Supplies’
  • Exempt (VAT on Purchases)
    Use this for expenses that wholly relate to ‘Exempt Supplies’ if you want the Gross value to be posted to Expense Account
  • 20% Non Recoverable VAT
    Use this for expenses that wholly relate to ‘Exempt Supplies’ where you want the VAT to be posted to ‘Non-Recoverable VAT’
  • 20% Residual VAT
    Use this for expenses that relate to both ‘Taxable’ and ‘Exempt’ supplies

If you want to use Option 1 above, de-activate the Tax Groups ‘20% Non Recoverable VAT’ etc. If you want to use Option 2 above, de-activate the Tax Group ‘Exempt (VAT on Purchases)’.

Partial VAT calculation

The ‘Standard Method Calculation‘ is used for calculating Partial VAT, taking the total of all supplies (Sales) and the total of all ‘Exempt’ supplies (those using Tax Group ‘Exempt (VAT on Sales)’ or ‘Exempt Export’)

The ‘Recoverable Percentage of Residual Input Tax’ is calculated to two decimal points and is then applied to all purchases using the Tax Groups ‘20% Residual VAT’ etc. to calculate the Recoverable VAT, and added to the Box 4 value.

The net of all purchases using the Tax Groups ‘20% Residual VAT’ etc. will be added to the Box 7 value.

De-minimis

The de-minimis rule is not included in our calculation, but we do calculate the values you can use to make your own calculation and using the ‘VAT Adjustments’ feature to alter the VAT Return.

You may also need to make additional Journal Adjustments (see below)

Annual Return

When the Annual Return is run, the VAT Quarter calculation is processed as normal. But the ‘Recoverable Percentage of Residual Input Tax’ is re-calculated for the whole year and an adjustment made.

VAT Period Close Journals

When you [Close VAT Return] Journals are added to Accounting Seed. The normal journal posts the Box 5 Value (Net VAT to be paid) to the ‘VAT Liability Account’.

With Partial VAT there is an additional Journal Posting from ‘Purchase Tax Control Account’ to ‘Non-Recoverable VAT’ for the non-recoverable VAT calculated.

And for the Annual Return there is an additional posting from ‘Purchase Tax Control Account’ to ‘Non-Recoverable VAT’ for any adjustments required.

NB: If you are using de-minimis you will need to make additional manual Journal adjustments.

Group VAT

With Group VAT the ‘Recoverable Percentage of Residual Input Tax’ can only be calculated when all the Group Members have been processed. So the steps are:

  • Process each Group Member VAT Return (*n)
  • Process Group VAT Return
    This will update the ‘Recoverable Percentage of Residual Input Tax’ in each Group Member and add up the total Recoverable VAT in the Group Return.
  • Close each Group Member VAT Return
    This will post the correct journal, included the Recoverable VAT
  • Close Group VAT Return
    This will not post any journals, but should not display the correct submission values.
  • Submit Return to HMRC