Supplies from non-VAT registered companies

DuaneJackson · Aug 24, 2008

According to this,

Generally, goods and services are outside the scope of VAT if:
they're supplied by someone who isn't, and doesn't need to be, VAT registered

Now I know you wont get charged VAT if the supplier isn't VAT registered. But it should still be included in the total of your purchases on your VAT return, shouldn't it?

It's the "outside of scope" that is throwing me. I thought things that are outside the scope aren't included on the VAT return.

Mattonella Tile Studio · Aug 24, 2008

I asked a similar question recently and was given the advice to set it up as T0 or a new code in SAGE, in order that it still showed in the total of purchases. T9 was the code that would be 'outside of scope' and that was deemed not appropriate.

Fernhurst Solutions Ltd · Aug 24, 2008

Interesting ..... I was always told that if a company wasn't registered for VAT, then the invoice was to be posted to T9 and T0 was to be reserved for companies that WERE VAT registered, but that particular invoice wasn't 'subject' to VAT.

DuaneJackson · Aug 24, 2008

Mattonella Tile Studio said:
I asked a similar question recently and was given the advice to set it up as T0 or a new code in SAGE, in order that it still showed in the total of purchases. T9 was the code that would be 'outside of scope' and that was deemed not appropriate.

That's my understanding too.

Mr Fenhurst - so is your understanding that it should be T9 and therefore not in the total on the VAT return?

Fernhurst Solutions Ltd · Aug 24, 2008

That is my understanding ..... having said that, I'm sure one of the "big hitters" will soon come along to shoot me down in flames.

Duke Fame · Aug 24, 2008

Mattonella Tile Studio said:
I asked a similar question recently and was given the advice to set it up as T0 or a new code in SAGE, in order that it still showed in the total of purchases. T9 was the code that would be 'outside of scope' and that was deemed not appropriate.

No, that's not quite right. Using T0 will include the purchase in box 7 of your return meaning 17.5% multiplied by box 7 will be out of synch with your total in bx 4 which, if it's out by significant amounts, you will attract the VAT man! Prchases out of scope should not be included in box 7

Mattonella Tile Studio · Aug 24, 2008

http://www.ukbusinessforums.co.uk/forums/showthread.php?t=75945

There's the link to the previous topic. I've got to go and look up box 7 now as I can't remember what it is.

Fernhurst Solutions Ltd · Aug 24, 2008

Box 7 is the total purchases (net amount) included in the detailed report on the VAT return.

Mattonella Tile Studio · Aug 24, 2008

Duke Fame said:
No, that's not quite right. Using T0 will include the purchase in box 7 of your return meaning 17.5% multiplied by box 7 will be out of synch with your total in bx 4 which, if it's out by significant amounts, you will attract the VAT man! Prchases out of scope should not be included in box 7

Box 4 wouldn't necessarily be 17.5% of box 7 anyway, because you would include zero rated and 5% rated purchases within your box 7 figure, (I think?)

Duke Fame · Aug 24, 2008

Mattonella Tile Studio said:
http://www.ukbusinessforums.co.uk/forums/showthread.php?t=75945

There's the link to the previous topic. I've got to go and look up box 7 now as I can't remember what it is.

Essentially, just look at Mr F's previous post, he was quicker than me and put it a little better!

Mattonella Tile Studio · Aug 24, 2008

Found this on another forum:

"I have confirmed with HMRC that a purchase which includes VAT is 'vatable' and NOT outside the scope of VAT whether or not the supplier is VAT registered or not"

On the same forum:

"HMRC advice say a transaction for a trader not registered because of below threshold is outside the scope of VAT"

Somebody wake Elaine up.

DuaneJackson · Aug 24, 2008

Duke Fame said:
Prchases out of scope should not be included in box 7

Agreed. But are supplies which are normally VATable, but have no VAT applied because they're supplied by a non -VAT registered company, "outside the scope"?

DuaneJackson · Aug 24, 2008

Mattonella Tile Studio said:
Found this on another forum:

"I have confirmed with HMRC that a purchase which includes VAT is 'vatable' and NOT outside the scope of VAT whether or not the supplier is VAT registered or not"

That's nonsensical. If the supplier isn't VAT registered then the purchase wont and can't include VAT

Duke Fame · Aug 24, 2008

Mattonella Tile Studio said:
Found this on another forum:

"I have confirmed with HMRC that a purchase which includes VAT is 'vatable' and NOT outside the scope of VAT whether or not the supplier is VAT registered or not"

On the same forum:

"HMRC advice say a transaction for a trader not registered because of below threshold is outside the scope of VAT"

Somebody wake Elaine up.

It is outside the Scope, not to be included on your VAT return at all. So if you use a system like Sage for your boobks, make it a T9, it will not be included on any VAT return in that way.

Mattonella Tile Studio · Aug 24, 2008

Just putting aside SAGE for a minute and going to manual bookkeeping. If you purchased 2 items, one from a VAT registered supplier, one from a non VAT registered, you would post both of them into the purchase day book, separating out the VAT element.

They'd then go into the ledger, where the two purchases would be included in the total purchase column. When filling in the VAT return, the figure in box 7 would come from the total in the purchase day book, which would include the purchase from the non-VAT registered supplier.

Jaydee · Aug 24, 2008

I agree - I have always drafted returns where only items outside of the scope of VAT, such as salaries, were omitted - in other words omitted because of the nature of the expense rather than the status of the supplier.

However, I noticed today that HMRC's own guidance at http://www.hmrc.gov.uk/vat/ret-howto.htm reads as follows:

"Box 7: your total purchases excluding VAT

Show your total VAT exclusive purchases ('inputs') on which you paid the VAT that you put in box 4. You should also include any amount you put in box 9. Don't include expenses such as salaries and taxes or anything that is outside the scope of VAT such as vehicle licences, MOT certificates and local authority rates."

Now, the "on which you paid the VAT that you put in box 4" reads that purchases from non-registered suppliers (and therefore on which you did not pay VAT) should be excluded - it would be news to me!

Mattonella Tile Studio · Aug 24, 2008

Do exempt purchases such as stamps still get included in the box 7 figure?

markmclaren · Aug 24, 2008

Mattonella Tile Studio said:
Do exempt purchases such as stamps still get included in the box 7 figure?

Yes, see here.

"Box 7
Show the total value of all your business purchases excluding VAT. Remember to include zero-rated and exempt purchases. You should also include the figure from box 9."

Paul Kelly ICHYB · Aug 24, 2008

what heppens if you introduce the different types of '0'% VAT?

Zero rated is different to exempt (which on KF isnt recorded)!

Alpha · Aug 24, 2008

Jaydee said:
I agree - I have always drafted returns where only items outside of the scope of VAT, such as salaries, were omitted - in other words omitted because of the nature of the expense rather than the status of the supplier.

However, I noticed today that HMRC's own guidance at http://www.hmrc.gov.uk/vat/ret-howto.htm reads as follows:

"Box 7: your total purchases excluding VAT

Show your total VAT exclusive purchases ('inputs') on which you paid the VAT that you put in box 4. You should also include any amount you put in box 9. Don't include expenses such as salaries and taxes or anything that is outside the scope of VAT such as vehicle licences, MOT certificates and local authority rates."

Now, the "on which you paid the VAT that you put in box 4" reads that purchases from non-registered suppliers (and therefore on which you did not pay VAT) should be excluded - it would be news to me!

Isnt that guidance just a rehash of the vat notice 700/12 which actually states..

5.7 Box 7

Put in box 7 your total purchases/inputs excluding any VAT. Include:

imports

acquisitions from EC Member States

reverse charge transactions and

special accounting scheme for gold transactions.

If you buy goods under the Margin Schemes, include the full purchase amount.
If you enter anything in box 9, also include it in the box 7 total.
See also common items for boxes 6 and 7 below.

There seems to be a subtle change in the advice given.

I have always produced vat returns in accordance with this note and never had an inspector question it.

David Griffiths · Aug 24, 2008

I wouldn't waste any energy worrying about it, as the figure is of minimal significance, and the value of purchases from non registered businesses is likely to be a pretty small part of it.

I've only ever known an inspector look at that figure in conjunction with the accounts once, and that was a particularly fussy, and misinformed, inspector more than 20 years ago. Nothing came of it.

I've even known occasions where people, not that I can remember who, of course, have simply grossed up the VAT at 17.5%, added a bit on, and stuck that in. Not that I'd ever condone such a practice, you understand!

Just make sure that the figure is more than enough to support the VAT claim and you can't go wrong. Occasionally it's not that high because there is a VAT only payment in connection with an insurance claim, but that's pretty rare.

It just ain't that important, folks.

Tom McClelland · Aug 24, 2008

David Griffiths said:
It just ain't that important, folks.

Bingo! I think that the chance of even the most pernickety inspector caring about this is remote. The key thing they're interested in is that you don't claim inputs where you don't have a valid VAT invoice from the supplier and that you declare all your outputs.

DuaneJackson · Aug 24, 2008

Tom McClelland said:
Bingo! I think that the chance of even the most pernickety inspector caring about this is remote. The key thing they're interested in is that you don't claim inputs where you don't have a valid VAT invoice from the supplier and that you declare all your outputs.

Agreed. but accountants can be more pernickety than VAT inspectors - so from a software point of view, we need to get it right.

I'll get on to HMRC and see what they say

David Griffiths · Aug 25, 2008

DuaneJackson said:
Agreed. but accountants can be more pernickety than VAT inspectors - so from a software point of view, we need to get it right.

I'll get on to HMRC and see what they say

I was thinking that when I made my post! Could you please change that to "some accountants?"

And I bet that some of those some accountants will actually check the calculations to see what you are doing.

davebrown · Aug 29, 2008

Having been dealing with VAT on a day to day basis for 30-odd years, on both sides of the fence, I can assure you that the average VATman doesn't really give a hoot what goes into Box 7, although if salaries are in there, he/she might well mention that they shouldn't. In my (personal) opinion, goods or services from a non-registered supplier aren't outside the scope. They are potentially taxable supplies, that just don't happen to be supplied by someone who is VAT registered. Having said that I guess someone will find a legal definition, such that a taxable supply is one made by a person who is, or is liable to be, registered! As someone rightly suggested though, it's no big deal so don't worry about it.

DuaneJackson · Aug 29, 2008

davebrown said:
it's no big deal so don't worry about it.

But as stated above, I have to.

I've been away all week, so will get on to HMRC on Monday.

davebrown · Aug 29, 2008

Sorry - just noticed what you do for a living!

DuaneJackson · Sep 2, 2008

OK, just had an interesting chat with HMRCs VAT Helpline.

The question I posed was:

"If we receive supplies from a non-VAT registered company should they be included in the calculations for Box 7. Assuming that the supplies would normally be VATable if supplied by a VAT registered company."

She said they SHOULDN'T be included and pointed me to Notice 700/12. I asked for the exact paragraph and asked if the supplies would fall under "income which is outside the scope of VAT because it is not consideration for a supply" as per 5.8

She put me on hold, and when she came back she apologised and said they SHOULD be included in Box 7.

Call reference is CDL1521 - they said if you phone and give them that call ref then you'll get the same response.

Somehow though, I don't think this will put the matter to rest : )

Alpha · Sep 2, 2008

DuaneJackson said:
OK, just had an interesting chat with HMRCs VAT Helpline.

The question I posed was:

"If we receive supplies from a non-VAT registered company should they be included in the calculations for Box 7. Assuming that the supplies would normally be VATable if supplied by a VAT registered company."

She said they SHOULDN'T be included and pointed me to Notice 700/12. I asked for the exact paragraph and asked if the supplies would fall under "income which is outside the scope of VAT because it is not consideration for a supply" as per 5.8

She put me on hold, and when she came back she apologised and said they SHOULD be included in Box 7.

Call reference is CDL1521 - they said if you phone and give them that call ref then you'll get the same response.

Somehow though, I don't think this will put the matter to rest : )

This is going to be sounding very smug but this post typifies why you cannot rely upon information given by HMRC telephone advisors

Most people would have telephoned, got the first answer and then told everyone how good and helpful the advisors are. Very few would have asked the second question and then be given the correct answer

DuaneJackson · Sep 2, 2008

And no doubt if I call tomorrow and don't mention todays call, I'll get yet another answer. Apparently there's also been discussion about this same VAT issue on accoutningweb recently

KM-Tiger · Sep 2, 2008

Interesting can of worms. I suspect I'm not alone in never having asked this question, let the software decide for us, never been raised on inspection.

But how is the average joe like me to know what should or should not be included? Some thing are obvious, like salaries and insurance. But what about an otherwise VATable supply that includes postage? Should the postage be in Box 7 or does it remain outside scope?

Jaydee · Sep 2, 2008

I agree that purchases from non-registered suppliers should be included in box 7 despite the poorly worded HMRC advice that I referred to in reply #16 a couple of pages back.

From a logic point of view, there can be no justification in excluding them, otherwise box 7 might as well be just calculated as box 4 / 17.5% !

Duane, I would say that you are safe to assume that these purchases should be included, but why does this need to be your problem at all?

Should this not simply be for the user to decide, like a Sage user would decide whether to use T9?

So, if the user enters a purchase invoice with no VAT into Kashflow in a certain way, it will include it in box 7, and if they do not then it will not.

Alpha · Sep 2, 2008

Jaydee said:
I agree that purchases from non-registered suppliers should be included in box 7 despite the poorly worded HMRC advice that I referred to in reply #16 a couple of pages back.

From a logic point of view, there can be no justification in excluding them, otherwise box 7 might as well be just calculated as box 4 / 17.5% !

Duane, I would say that you are safe to assume that these purchases should be included, but why does this need to be your problem at all?

Should this not simply be for the user to decide, like a Sage user would decide whether to use T9?

So, if the user enters a purchase invoice with no VAT into Kashflow in a certain way, it will include it in box 7, and if they do not then it will not.

That's because the way that Kashflow has been programed to produce vat reports doesn't facilitate the same process that Sage does...i.e. the ability to add vat codes

DuaneJackson · Sep 2, 2008

Alpha said:
That's because the way that Kashflow has been programed to produce vat reports doesn't facilitate the same process that Sage does...i.e. the ability to add vat codes

'zactly. We've gone with a very "keep it simple" approach. Which has it's benefits as is seen in the kind of testimonials we get, but then leads to issues when more and more people sit up and take notice of us.

Originally, our users wouldn't have wanted to worry about VAT codes and stuff - they just want to be able to enter their data. It's a ery different mind set fromt hat of an accountant.

The profile of our typical user has probably changed quite a bit over the years.

Jaydee · Sep 2, 2008

So is the bigger problem for you not whether to include "no-VAT but otherwise generally taxable" net purchases in box 7, but how does the user exclude "outside of the scope" purchase invoices from box 7?

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