Out of scope VAT option missing on VAT return form

[Punk_Translator]

Hello everyone. I am a B2B in the UK, providing services to an EU client. I have two questions:

1. There is no ‘Outside scope’ option on the VAT return form (a VAT tech at HMRC advised that it applies in my case). In addition, although I have yet to complete my return, the boxes have auto populated from my sales invoices and I can’t edit them. I explained to the tech that this issue happened with my last return and that box 5 had auto populated with VAT due (even though not relevant in my case). He suggested there must be a way to customise.

2. If in future I have a mix of clients from the UK (for which I would pay VAT) and EU clients (for which the reporting is different) how can I split this difference on the form so I can report in two different ways? I can’t seem to access any options.

Thank you.

[ian_roberts]

@Punk_Translator

There is no ‘Outside scope’ option on the VAT return form

The “out of scope” option is something you would set on a specific invoice, not on the return. In QuickFile if you tick the out of scope option for an invoice or purchase then that invoice or purchase is completely ignored for the VAT return - it doesn’t contribute to any of the boxes, not even 6 or 7.

If your EU client is a business rather than a consumer then you shouldn’t have charged them any VAT in the first place - you would zero rate your invoice and add a note saying that the customer should account for the VAT themselves using the reverse charge. Such invoices should be counted in box 6 but will not have any VAT on them to contribute to boxes 1, 3 and 5.

If your EU client is a consumer then it depends exactly what kind of services you’re supplying - in most cases you’d just charge UK VAT as normal but there are special rules for some types of service that you’d need to clarify with an accountant.

[Punk_Translator]

Ian, thank you for your reply. I was sure I’d seen the option somewhere, so I’ll just go back to the invoices.

I did not charge my client VAT but I found the return form was calculating it automatically. I have to edit the invoices.

[Spike]

My understanding of making tax digital is that it’s supposed to be calculated from the invoices. As long as their accurate then the vat should be calculated all ok.

[ian_roberts]

@Punk_Translator

I did not charge my client VAT but I found the return form was calculating it automatically.

Are you on the flat rate scheme by any chance? If so then this is expected - indeed, HMRC themselves state in the Flat Rate scheme guidance that

As exempt and zero rate supplies are included in your flat rate turnover you apply the flat rate percentage to the exempt and zero rate turnover. You may pay more VAT by being on the scheme if these supplies are a larger proportion of your business turnover than the average for your trade sector.

But looking at things like accountingweb there seems to be no consensus on how you’re supposed to treat overseas sales here. It’s clear that even though they’re described by HMRC as “out of scope”, sales to overseas customers are supposed to be included in box 6 if you’re on standard VAT (not flat rate) - the way to do this in QuickFile is to treat them as zero rated and not tick the OOS box. However it seems they’re not supposed to be included in your Flat Rate Turnover for the purpose of calculating a flat rate return. The thing nobody seems to be able to agree on is whether overseas sales are supposed to be added to box 6 if you’re on the Flat Rate scheme, in addition to your flat rate turnover:

Box 6 on flat rate VAT return ... again

If the answer is yes then I don’t know of a way in QuickFile to include an invoice in box 6 but exclude it from the flat rate calculation - if you tick the OOS box the invoice won’t go into box 6, if you don’t tick OOS then the invoice will go into box 6 but will then be included in the flat rate calculation. This scenario may not be possible without making a manual adjustment to box 6.

[Punk_Translator]

Hi Ian, I’m confused by your reply - I’m on cash accounting not flat rate. But the VAT adviser specifically advised for me to enter OOS.

[ian_roberts]

Hmm, I suppose it’s possible that this might happen if the payment arrived in advance of the invoice date - if you receive payments in advance that are not immediately assigned to invoices then for cash accounting those payments still need to be declared on your VAT return for the quarter in which they were paid. The way QuickFile handles this is generally to assume a VAT rate for the payment and declare the VAT accordingly (e.g. one sixth of the payment total for a payment logged as 20% VAT). If you later assign the payment to an invoice that has a different VAT rate then the next VAT return will automatically adjust for the difference.

If you know that the advance payment will ultimately be assigned to a zero rated invoice then I believe you can specify the assumed VAT rate as zero when you initially log the pre-payment, but I can’t test this in my own QuickFile account as I’m no longer VAT registered.