Foreign VAT - Out of Scope / how to record

Dear all, there was a discussion on this in 2018, but I can’t find whether this has been resolved yet.

I’m a UK business with some operations in the Netherlands. I’m VAT registered in the UK, but also in the Netherlands, so I can deduct Dutch (21%) VAT on parts imports charged at the border from the Dutch VAT payable on sales in the Netherlands.
So I need to account for this somehow, and mark invoices in/outgoing appropriately. I’ve recently switched from Wave to QuickFile, happy days, but now I’m really struggling: I can’t seem to assign both the “out of scope” label to suppliers AND have the 21%VAT applied. When I select “Out of scope” the VAT on creating the supplier’s invoice, the VAT automatically jumps to 0%. Reading through topics makes me worried whether foreign VAT is supported at all by QF - did I make the wrong choice of switch…

Please help!

Hi @joris

I’m sorry to say that QuickFile is only set up to support UK VAT.

Oh no! How do I work around this? I’ve literally just moved everything over to QF

Hi @joris

@QFSian initially asked me about this to be sure, but I’ve since had to double check with our development team on this, as I initially saw the same behaviour you mentioned.

However, I’ve been informed that if the client/supplier country is not set to the UK, then you can set both the VAT rate and have the invoice marked as out of scope.

Hope this helps

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As Matthew has confirmed you can set non UK VAT rates and use them on out of scope invoices, but there’s two things you’ll have to watch out for.

First there’s no support in QuickFile for calculating and submitting VAT returns to non-UK authorities - you’ll have to calculate your Dutch VAT return figures yourself somewhere else, and if NL has an equivalent of MTD then you’ll need other software to support that and to work out how to transfer the data in a compliant way.

And second, all the nominal accounts and reporting in QuickFile are hard coded as GBP, so you’ll need to convert the EUR figures from your NL return back into GBP in order to enter the equivalent journal for your NL return that QuickFile creates automatically from a UK one, and do it in a way that avoids creating more currency adjustments. You can’t necessarily take the EUR total sales VAT from your NL return, convert that to GBP at the exchange rate on the return date, and journal that from the sales tax control account, rather you’ll probably have to get the list of invoices whose EUR amounts you summed up for the NL return, and calculate the QuickFile journal amount separately by adding up the GBP equivalents that QuickFile gives for each one, which were calculated from the exchange rate as it was on the date of each individual sale.

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Hi Ian, thanks for your attempt to explain this to me. I really appreciate it but I’m afraid it goes over my head. Half way the text I just lose what you’re talking about. Is there any way you could tell me what to do step by step?

  • I have created an invoice wit the NL VAT (21%) on it. And marked it out of scope for UK VAT. So that worked.
  • The client has since paid, including the NL VAT, and I’ve marked it fully paid, so that worked too.
  • I have also reported the VAT to the NL taxman, and subsequently paid them the full amount of Dutch VAT due. That worked too.
  • So now I’ve got a transaction going out of my EUR account for the VAT paid to the Dutch taxman. And there is the Dutch VAT on the invoice that must have gone somewhere in the software (but I’m not sure where) How do I go about assigning these things properly?

Do you invoice the customer in EUR or in GBP? In my explanation below I’ll assume EUR but let me know if this is wrong.

I’ll deal with the second question first: where is the VAT in your QuickFile nominal accounts. The answer is that when you created the invoice to your NL customer this would have created (at least) three nominal entries in QuickFile:

  • the net amount as a credit on the sales code (or codes, if it’s a multi-line invoice)
  • the 21% VAT amount as a credit on the “sales tax control account”
  • the gross total of both of these as a debit on the “debtors control account”

All of these values will be the GBP equivalents of the EUR amounts based on the exchange rate on the date of the invoice.

When the customer pays you that payment creates a credit on the debtors control account and a debit on the bank account into which you were paid.
There will probably also be an entry on “currency charges” for the currency variation, i.e. the difference between the GBP value of the EUR invoice total on the date of the invoice and on the date when you were paid.

With UK VAT, what QuickFile does when you run a VAT return is to add up all these individual sales (and purchase) tax control account entries and create a journal that clears the relevant amounts off the control accounts and puts the balance onto “VAT liability”. When you pay HMRC it clears that liability account. So you will have to duplicate this manually for your NL VAT. When you come to do your NL VAT return you will have a list of sales and purchases on which you need to pay the VAT. For each of those sales you need to find out how much GBP value went onto the sales tax control account when the invoice was created, add all those up, and use that as the value for your VAT journal - this may be different from the value you would get by simply converting the EUR total sales VAT from your NL VAT return at today’s exchange rate. I don’t know how easy it is to extract that information from QuickFile as I’ve never tried doing sales invoices in anything other than GBP, it may be something you can get by exporting the specific sales as a CSV or you might need to dig it out of an account backup using Excel.

The journal you’re aiming to create is

  • debit sales tax control for the GBP total sales VAT on your NL invoices
  • credit purchase tax control for the GBP total of any NL VAT you’re reclaiming on purchases
  • credit or debit the balance to either the same “VAT liability” nominal that QuickFile uses for UK VAT, or create a new one from your chart of accounts to keep the two separate.

Now when you pay the Dutch tax man you somehow need to map the EUR amount you sent him to the GBP amount you calculated for your liability. It may be possible to do this with “something not on the list” but if that doesn’t let you specify the exact GBP amount then it might be better to make a GBP-denominated bank account rather than a plain nominal account for your NL VAT liability, as I know you can definitely specify the exact EUR-GBP conversion when you tag the outgoing payment as a bank transfer.

You’ll then need to record a currency loss/gain on your EUR bank account in order to account for the drift between the EUR exchange rate when you incurred the liability and the rate when you paid it off.

Yes, multi-currency is a pain to deal with…

Hi Ian, thanks so much for such an elaborate response!
Indeed the invoice is in EUR, single line item invoice.

I’ve read it about 10 times now and I kind of follow what you’re saying, but I unfortunately struggle to translate it into tangible steps. I’m just not at the right level with my knowledge of accounting, accounting language and accounting software. I will give it another try tomorrow with fresh courage…
In any case it does sound like an awful lot of manual actions that will have to take place on a very regular basis, even if I manage to even get to the point of figuring out what those steps are … Is this perhaps anywhere on any of QF’s development backlog? My time is so much better spent running my design business that this… I’d be happy to pay some reasonable premium for multi currency VAT, just like I am paying for bank feed.

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