User instructions for VAT registered UK businesses inputting data into Powered Now to run VAT reporting
Please note: These instructions are not necessary when the business is not VAT registered. If you wish to track costs in Powered Now, simply ensure that Tax/VAT is turned off and that the total including VAT is entered for every supplier invoice.
These instructions explain how to create Quotations, Invoices, Expenses, Supplier Invoices and related documents in order to ensure that they will generate an accurate VAT return. This can be done either directly from Powered Now through MTD for VAT to HMRC, or through an accounting system which Powered Now interfaces to where the necessary transactions are sent to the accounting system.
Where Powered Now’s MTD for VAT capability is used:
- Costs, as well as Sales Invoices, must be entered into Powered Now
- Adjustments can be made to the VAT submission to get the correct final result
Powered Now’s MTD for VAT capability works for companies using the Standard Scheme or Cash Accounting. It can also support the flat rate scheme when passing transactions to an accounting system through an interface.
Note: the cash accounting scheme can’t be used if you directly buy imports from the EU or from outside the EU: the HMRC guidance states that the following sentence has the force of law:
- “You cannot use the Cash Accounting Scheme for goods you import, acquire from a business registered in another EC member state or remove from a customs warehouse or free zone. You must account for VAT on such purchases under the normal VAT rules as explained in VAT guide (VAT Notice 700). You can, however, use the scheme to account for VAT on the onward supply of such goods”.
Although we have done our best to make this document accurate, we do not guarantee this and we are not accountants. It is ultimately the responsibility of the business to make an accurate VAT return.
Ensure your Contacts have the correct country!
When you are operating from the UK, the country for every contact will default to the UK. However, the correct country (including the Isle of Man, Guernsey and Jersey but also USA, Germany, France etc.) must be entered on all contacts for the correct processing of VAT. Note that Alderney, Sark, and Herm are part of Guernsey for tax purposes.
If all customers and suppliers are within the UK, things are straight-forward and the more complex sections B and C can be ignored.
A1: Sales in the UK
Quotations, Sales Invoices, and credit notes
The VAT rate for entries is selected from Standard, Reduced, Zero, Exempt as appropriate depending on what is being sold. Most trade companies will use “Standard” although some can use “Reduced” 5% rate for some building work.
When doing residential building work if quoting based on the reduced rate it can give you a competitive advantage over businesses always quoting the standard rate. Alternatively, if you quote the standard rate and a competitor quotes reduced rate you will be at a disadvantage. There are complex rules for this so you should check with your accountant if you believe that reduced rate may be applicable.
Here is an example of what might qualify for a reduced rate, though this is always worth discussing with your accountant:
- Supply and fit of energy-saving materials when this is the focus of the contract. This can include draft excluders, roofing, flooring, wall insulation and central heating controllers. If the contract is part of a bigger job (e.g. installation of a full central heating system or building an extension) then the standard rate, not reduced rate, must be charged. Double glazing is always at the standard rate.
- Supply and fit of heating of water or space using a ground source, air source or solar also qualifies for the reduced rate. Again, this must be the focus of the contract.
- Residential conversion such as a barn or chapel to residential use; changing a single unit house to a multi-unit or vice versa; urban regeneration when restoring a property that has been empty for two or more years (proof of lack of occupancy would be required) again attracts reduced rate.
- As a reminder, supply and fit of new builds are charged at Zero VAT.
Other reduced rate items, but which are not normally sold by the trade, are heating oil and children’s car seats.
Payments and refunds
Payments and refunds should be entered with the date that the payment was received or the refund paid. Payments do not need to be entered if Powered Now is connected to an accounting system and payments will be accounted for there.
Any self-billed invoices issued by customers should be raised as a sales invoice in Powered Now but this is unlikely to apply to trade businesses.
A2: Purchases in the UK
You must have a proper VAT invoice to support any claims for VAT on purchases. If you do not have a VAT invoice for an expense or something you have purchased, the gross amount should be entered with a VAT rate of zero.
Purchases in the UK (including England, Scotland, Wales, NI and Isle of Man)
If you are using an interface from Powered Now to an accounting system, you may choose to enter costs either into Powered Now or directly into the accounting system.
The VAT rate for supplier VAT invoices and expenses is selected from Standard, Reduced, Zero, Exempt or Outside scope and is normally found on the invoice.
Some goods and services are zero-rated including most food. This means they are taxable for VAT, but the VAT rate is zero percent. Examples are trains, tubes, some food, scheduled flights.
Some goods and services are exempt from VAT such as stamps, bank charges, insurance, most services from doctors and dentists and some types of education and training.
MOT testing, congestion charge; tolls for bridges, tunnels and public roads; also donations to charities freely given by a business where the giver does not receive anything in return are entered with a tax setting of Outside scope (outside the scope of VAT).
Business entertainment expenses should be entered with the gross cost and the VAT rate should be set to Zero. This applies whether they are incurred in the UK or in the EU.
B1: Sales to the EU
In all cases of selling to the EU, the category must be entered on each invoice line and this determines whether what is sold, is “Goods” or “Services”, as goods are separately declared on the VAT return.
When selling goods to the EU and the customer has quoted their VAT number Reverse Charge tax setting is used and a category related to goods must be selected. This means that VAT is omitted from the invoice and it says “Reverse charge” on the invoice.
If providing labour outside the UK this would be subject to local rules and should not be invoiced from the UK.
In the unlikely event that a UK trade company is selling services to the EU e.g. accountancy advice over the phone or in writing and the customer has quoted their VAT number (or there is evidence that they are in business) then Reverse charge tax setting is used and a category related to services must be selected. This means that VAT is omitted from the invoice and it says “Reverse charge” on the invoice.
When selling goods or services to the EU where the recipient is a consumer or selling goods where a business has not quoted their VAT number, a normal VAT code is input which causes VAT to be charged and accounted for similar to if the transaction was in the UK. However, total sales to that country in one calendar year must not exceed 35,000 or 100,000 Euros depending on the country. If this limit is breached, VAT registration in that country is likely to be required.
Sales of digital services to consumers in the EU are treated differently and fall under the VATMOSS scheme. This is not supported by Powered Now.
B2: Purchases from the EU
In all cases of buying from the EU, the category must be entered on each invoice line and this determines whether what is purchased, is “Goods” or “Services” as goods are separately declared on the VAT return.
You must quote your VAT number to the supplier when purchasing from the EU so that you are not charged VAT and you are not charged VAT. The invoiced amount is then entered with a tax setting of “Reverse charge”.
If you did not quote your Vat registration number, enter the gross invoice amount with a tax setting of Standard/Reduced/Zero/Exempt.
depending on how those goods or services would be treated in the UK.
For purchases, the tax point is the earlier of the invoice date or the 15th day of the month following the one in which the goods were sent. So, if goods were received but not invoiced it would be necessary to enter a supplier invoice for them on the 15th of the following month with a date of the 15th.
C1: Sales outside the EU and UK
The tax setting “Outside scope” will automatically be selected when selling outside the EU and UK. VAT will not be added to the invoice. Powered Now does not support invoicing in a second currency, all invoices must be raised in pounds.
Sales to The Channel Islands (Jersey, Guernsey, Alderney, Sark, Herm) are also outside the EU and UK for VAT purposes along with the rest of the world (USA, Canada, India, Kenya, China etc.). The Isle of Man is considered inside the UK for VAT purposes and should be treated as if it is in the UK.
C2: Purchases from outside the EU and UK
All foreign purchases priced in a foreign currency must be converted to sterling before being input. You can do this using either the UK market selling rate at the time of the supply, as published in national newspapers or the rates of exchange published by HMRC, known as the period rate of exchange. To quote HMRC: “If purchases are priced in a foreign currency you must convert their value to sterling first. You can do this using either the UK market selling rate at the time of the supply, as published in national newspapers or the rates of exchange published by HMRC, known as the period rate of exchange”.
Importing goods or services
In all cases of purchasing from outside the UK and EU, the category must be entered on each invoice line and this determines whether what is purchased, is “Goods” or “Services” as there is different handling for goods and services.
When importing goods (indicated by the category) into the UK from outside the EU:
- Pay the appropriate duty and also VAT.
- If these goods if sold in the UK would be Standard or Reduced rated
- Send a declaration to HMRC using the Single Administrative Document (SAD) known as form C88.
- SADs can be submitted electronically using the Customs Handling of Import and Export Freight (CHIEF) system, or manually.
- Imported goods aren’t released by customs until duty and VAT have been paid.
- The VAT payable is (The Customs Value + Duty levied on the goods) * VAT Rate where this is the same rate as if the goods had been bought in the UK, however, this is determined by HMRC.
- Import VAT is paid directly to HMRC, not to the supplier of goods. After payment, an HMRC form C79 will be sent to the business address.
- When form C79 is available, the net amount of the supplier invoice (including the duty) can be entered and a tax setting of Standard/Reduced as appropriate added to the amount of the invoice so the total is the total paid out for all reasons. This will allow a reclaim of the VAT as input tax in the same way as VAT is paid on UK purchases. Also, the accounting date shown on the certificate should be made the date of the supplier invoice.
- If you do not have form C79 then the “C79 not available” tax setting should be chosen and the gross amount including duty and VAT should be entered. This is because the VAT cannot be recovered.
- If the goods would be zero-rated if sold in the UK, a tax setting of Zero should be used and no SAD or C79 is involved.
- If receiving services, tax setting of Reverse charge is automatically selected and the net amount should be entered.
- If payments are being recorded in Powered Now then both the payment for the goods, payment for duty and the separate payment for VAT should be recorded against the supplier invoice.
The tax point is the earlier of the invoice date or the 15th day of the month following the one in which the goods were sent. So, if goods were received but not invoiced it would be necessary to enter a supplier invoice for them on the 15th of the following month with a date of the 15th.
Expenses and supplier invoices with the flat rate scheme
Powered Now does not directly support the flat rate scheme but can do when an external interface, e.g. to Xero, is being used.
When running under the flat rate scheme, all expenses and supplier invoices should be entered with the gross cost and the VAT rate should be set to Zero.
Notes on adjustments to VAT boxes
Consult your accountant on how to apply adjustments.
Adjustments might include:
- Any net road fuel scale charges that you wish to reclaim the VAT on. These would need to be included manually using an adjustment. Sales invoices that should have been previously raised for gifts to staff or anything used personally as VAT will be due on this even if no payment is made.
- Capital purchases over £2k when running the flat rate scheme.
For more information on Making Tax Digital visit: https://www.powerednow.com/mtd