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Supplier's Default VAT (20%) not applied through bank tagging on FRS

Greetings,

I setup a hotel as a supplier with a Default VAT Rate = 20%
However after I try to tag a bank statement outgoing payment of say £120 to that supplier, a purchase invoice is generated with amount = £120 , VAT = £0. I was expecting it to observe the Supplier’s default VAT rate and create a line with Amount = £100, VAT = £20. How can I do this? Am I doing something wrong?

Thanks
Nick

Hi @NickW

When you entered the details for the purchase through bank tagging, what value did the VAT box take there? Was it 20%, or 0% for example?

image

Hi @QFMathew,

It generated a purchase invoice with 0% VAT.

I was expecting 20%.

The supplier default (20%) seems to be ignored.

Thanks
Nick

Hi @NickW

Thanks for that.

But before the invoice was generated, at the tagging stage, was the “VAT” box filled with the 20% or 0%.

Please see my screenshot above to see the box I’m referring to.

Hi @QFMathew,

There was no VAT box. I’ve pasted below.

Thanks
Nick

Hi @NickW

Thanks for the screenshot - that’s really helpful.

As you’re on the flat rate scheme, you should only be recording the gross value of the purchase. Typically you wouldn’t be reclaiming the VAT, and from an accounting perspective, there’s no need to record it.

The only way to record it (e.g. if the purchase meets the criteria set by HMRC), would be to record the purchase manually.

Hi @QFMathew,

Thanks for quick response!

So are you saying for each payment coming across from bank statement, I’ve got to manually create a invoice and calculate what part of statement amount is net and what part is VAT amount? That sounds like a painful time consuming exercise. :frowning:

Is there any way round this? Can I maybe switch off the ‘flat rate scheme’ setting, then do the tagging, then switch the scheme on again or will that just mess up the accounting?

Or do I just accept a invoice that says Net £120 , VAT 0% £0 when the invoice I actually receive (paper form) says Net £100, VAT 20% £20 ?

Thanks
Nick

When you enter the VAT, what you’re actually doing is splitting the invoice into 2 parts - what you’ve spent, plus the tax. The tax part is then used as part of your VAT return and other reports.

There’s a more detailed explanation here: How do I record VAT on my purchases if I’m not VAT registered?

Although you are VAT registered, with the flat rate scheme, purchase VAT isn’t relevant unless it’s something such as a capital expense.

Okay thanks.

So do I just leave the generated Invoice as it is then, with Invoice Amount = £120 + VAT 0% £0?

Nick

That’s correct :slight_smile:

The only time you would show the VAT itself is when you wish to claim it, but there are specific cases where this is possible.

:+1:
Thanks for you help.

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