VAT exempt code reporting

We use Stripe and I have them set up as a supplier with “Exempt or out of scope for VAT” as their fees are not VATable.

I need to do my first VAT return from Quickfile at the end of the month so am trying to balance the figures with those of my old accounting software. Luckily, the VAT payable does balance :slight_smile: . However the “total purchases” figure doesn’t. On looking at the VAT return transactions, I see that out of 11 fee payments to Stripe this quarter, only two are recorded on this list. I understand that exempt supplies should be recorded on the return so am trying to work out if I have done something wrong to stop them being recorded.

Thanks for any help/if anyone can throw any light on the matter.

I believe QuickFile wrongly excludes purchases marked exempt from box 7, the simplest way to cheat it would be just to treat them as zero rated rather than ticking the exempt box.

However, I’m pretty sure my invoices from stripe tell me to reverse charge rather than exempt the VAT… which is another thing QuickFile doesn’t support properly but that’s a separate post.

Thank you. I didn’t even know that Stripe provided invoices (and had to search a lot to find them). I enter the fee for each payment individually (we only have a few) and as far as I am aware, bank charges and similar are exempt so I assumed Stripe fees were the same. You are correct in that it says that it is subject to reverse charge due to them being based in Ireland (again, I wasn’t aware of this). I guess that I will need to go through and change each one to reverse charge from now on. Presumably QuickFile will then report the reverse charge correctly with the VAT return (I would have needed to do it manually with my old software/VAT reporting). I think I might need to check out PayPal to see if they are the same…

I have now corrected the supplier details for Stripe and marked each “purchase” as reverse charge. Now on the report, two of these (out of 11) are reporting as Total value of acquisitions from other EC states exc VAT. & PURCHASES FROM OTHER EC MEMBER STATES (Products) . All are Stripe fees and are therefore services, not acquisitions/products and AFAIK should not report on the VAT return in that box. Similarly, Total value of supplies to other EC states exc VAT. is showing a value when again, all of our sales are services, not goods and therefore shouldn’t be reported as such.

So I now have two issues:

  1. Transactions are reporting where they shouldn’t be (unless I have it very wrong).
  2. Only 2 out of 11 of my Stripe fees are reporting (as purchases from EU member states) but I have no idea why that is.

This is what I alluded to when I said

When you tick the box entitled “reverse charge” on a QuickFile purchase, it doesn’t actually apply the reverse charge rules (put the net in box 6 and the VAT in box 1) - what it does is apply the rules for EC acquisitions of goods (put the net in box 9 and the VAT in box 2). As such, when I’ve had stripe fee invoices I’ve ticked the so-called “reverse charge” box but then had to make a small adjustment when it comes to submitting the VAT return, to subtract the Stripe VAT from box 2 and add it to 1, and subtract the net from 9 and add it to 6.

Did you definitely untick the exempt box for them all, are they all in the right date range, and are you on cash or accrual accounting for VAT?

How do you make adjustments to your VAT return? The new “Making Tax Digital for VAT” rules mean that you have to submit direct from your accounting software. This is the only reason I am using QuickFile - in order to comply with the new regulations. If QF doesn’t actually calculate the return properly then I am really stuck - not got time to transfer everything to another new accounting software package as my VAT quarter ends today.

There is no “exempt” box on the purchase invoice, only:
VAT Options: Out Of Scope [[?]]
all are unticked - as they should be for EU transactions. Non-EU country transactions are out of scope (and I also use this for non VAT registered businesses which I hope is correct!).
Yes, correct date range (01/02/2019 - 30/04/2019). The two are from mid February. The others are from earlier in February and some in March.
Cash accounting for VAT

You make adjustments by clicking the little arrows to the right of the VAT return boxes. It seems to me a bit of a grey area around exactly how this squares with MTD but you could probably argue it either way - the MTD guidance says this about reverse charge transactions:

so it hinges on the exact meaning of “recording” a transaction. Is it enough to record the fact that you moved the VAT from box 2 to 1? I’m not an accountant so ask one if you want a second opinion, but personally I figure if the amounts are so small and it makes no difference to your overall liability it’s probably fine.

However, if you want to be totally sure then the HMRC advice suggests we need to explicitly record the self-supply as a “sale” in QuickFile:

  1. First, forget about the “VAT registered in another member state” thing for Stripe and just turn the invoice back into a normal purchase without the so-called “reverse charge” tickbox. Set the net amount to the total from the Stripe invoice, and set the VAT to 20% - this will make the QuickFile purchase gross total actually be 20% more than you paid, which is OK as we’ll cancel it out later on.

  2. Identify a suitable bank account in QuickFile (you could use your drawings/DL/petty cash account or it might be clearer to create a special “reverse charge holding account” in the merchant accounts section), then go to the chart of accounts, locate that bank account nominal in the assets and liabilities section, click the yellow cog wheel icon and enable “Allow this code to be used in sales invoices”.

  3. Now create a sales invoice on the same date as the purchase invoice, for the same amount as the purchase invoice (so net equal to the total stripe fees and add 20% VAT). Click the grey cog wheel in the line description box and change the nominal category for the sales invoice to the “reverse charge holding account” you just created.

  4. Mark both the purchase and the sale as paid from/to the same reverse charge holding account, on the same date. If I’ve done my sums right this should leave the holding account overdrawn by an amount exactly equal to the original net amount of the Stripe invoice before we started faffing around with VAT.

  5. To close the circle, you then make a bank transfer for this net amount from your Stripe holding account into the reverse charge holding account. Ideally this should happen on the same date as you logged the payments to the sale and the purchase, so everything lines up for cash accounting.

All horribly complicated but the final result will be right - for your VAT return the purchase will contribute the net to box 7 and the VAT to box 4 and the “sale” will contribute the net to box 6 and the VAT to box 1, and your P&L and balance sheet are unaffected because of the way you posted the “sale” to the holding account nominal (what it gives with one hand it takes away with the other).

Firstly, thank you so much for taking the time to explain all of this to me. Your explanation of the steps required to “make it right” is clear and I understand how this would work. I don’t really want to have to do all this extra work (and have the associated extra transactions) though. The amounts we are talking about are so small that even calculated on minimum wage, I think it would work out that it was costing more for me to create the transactions than the amount of VAT involved! My view is that if I need to “fudge” it to make it right then I might as well just adjust the figures in the return (thank you for explaining this too, I hadn’t noticed the little arrows).

It all does seem a little weird that QF isn’t calculating the VAT return correctly though. I am going to create another post (linking to this one) and see if I can get one of the QF staff to give an explanation. In the meantime, I do have another possible software package I can try - will take a while to set it up and record three months’ worth of transactions though :grinning:. My VAT return on the HMRC website says I have until 7 June to get it submitted - it might take me that long to set it all up :unamused:

Thank you again Ian for all your help.

There have been many threads over the years complaining about QuickFile’s (non-)handling of the reverse charge, the response has always been that they don’t want to make any substantial changes to the logic until they know what’s happening with VAT post brexit. Looking at it as an outsider with programming knowledge it doesn’t seem like it should be too substantial a change (the logic for reverse charge is identical to the existing logic for goods acquisition tax except for the VAT return box numbers) but I don’t know their database and code structure.

For me personally it’s just a minor niggle as Stripe is the only supplier where I have to apply the reverse charge, but for some people a substantial chunk of their purchases are reverse charge services from overseas suppliers.

Thanks @ian_roberts

I agree with you that the reverse charge issue is only a minor niggle now I have it confirmed, and I just need to adjust my figures in box 1 & 4 (as I did previously), and I can also adjust boxes 2, 8, 9 down to nil as well. The more problematic issue (for me) is the issue where only 2 of my 11 Stripe payments are appearing at all with no obvious explanation (unless I have done something weird that I can’t spot). If these payments aren’t being reported correctly, how do I know that everything else is? I will still have to check/calculate/balance my VAT by using a spreadsheet and then correcting/amending the return (if necessary) before submitting which I thought was what MTD was supposed to be avoiding.

I don’t work for QuickFile so I can’t look at your specific account, but I can think of several possible reasons why something wouldn’t appear in the VAT return:

  1. It has already been included in a previous return
  2. You’ve set your “VAT start date” and the purchases are dated before this date
  3. You’re on cash accounting and the payments on these purchases were logged after the end of the VAT period
  4. They’re marked exempt or out of scope
  5. You just tagged them as “something else not on the list” rather than creating a purchase.

To be honest, at this point I’d be tempted to just delete everything relating to stripe fees for the quarter and start again, downloading the three monthly invoices from “business settings” on your stripe dashboard and just entering those as three purchases, with a single bulk payment for each one at the end of the relevant month - don’t bother recording a separate payment for the fee on each individual transaction.

Thanks for your reply Ian.

This is the first return on QF. I started entering transactions from 1 February to coincide with the start of the VAT quarter.

VAT start date is set to 01/02/19.

We are on cash accounting but all payments for these are logged on the same date as each purchase and all were before 30 April (end of the VAT period).

None have “out of scope” ticked

I marked a manual payment for each one at the bottom of the purchase. I haven’t yet discovered if it’s possible to download transactions from Stripe & import in the same way as bank accounts so I just do it manually.

As Stripe fees are charged out of the amount received, rather than them billing monthly, I prefer to show the individual fees on the correct dates, but I can see how your suggestion might solve this particular issue. I might, however, try deleting one of each (one which is included in the VAT return and one which isn’t) and then re-input them to see if anything different happens. What I am most concerned about is that I have made a minor error (which I can’t find) and which has changed what is reported on the VAT return. A similar thing could happen again and I might not notice it.

I wonder, you mentioned about marking some of them “exempt” previously. Subsequently you changed the stripe supplier settings from “exempt or out of scope” to “vat registered in another member state”.

It may be that these missing purchases are still flagged exempt in the QuickFile database but you can’t see (or change) the checkbox for this because when a supplier is “registered in another…” then the exempt checkbox isn’t visible on their purchases.

I suspect if you changed the stripe supplier setting back to “exempt or out of scope”, edit the purchases to untick the exempt box, then change the supplier setting back again, then all will be well. If I’m right then this odd situation is just an artefact of changing the vat status of a supplier after you’ve already created purchases for them, which isn’t something you’d normally have reason to do.

Thanks Ian, I will try this.

Yes - it worked! Thank you so much for your help Ian. Now to solve all of the other mysteries and get everything to balance before submitting the return :grinning:

(the reverse charge part also works now (in box 4) so the only other thing I need to do for RC is to move what’s in box 2 & add to what’s in box 1).

Yes - subtract from 2 and add to 1, subtract from 9 and add to 6.

Should this be subtract from 9 and add to 7? Box 6 is sales.

It should definitely be 6. The way goods acquisitions and reverse charge transactions work, you are effectively both the supplier and the purchaser for VAT purposes.

For goods the VAT goes in both boxes 2 (to pay the VAT as if I were the supplier) and 4 (to reclaim the VAT as I’m the purchaser), and the net goes in both 9 (for the “sale”) and 7 (for the purchase).

For the reverse charge, the vat goes in boxes 1 (for the “sale”) and 4 (for the purchase), and the net goes in both boxes 6 (for the “sale”) and 7 (for the purchase).

So in your case where you’re adjusting the VAT return to turn a goods acquisition into a reverse charge, it’s the “sale” side of the equation that you’re moving, hence 9 to 6 - the amount is already included in the box 7 total for the purchase side.

Thanks for your explanation Ian. I was not aware that I needed to include the amount in both 6 & 7 (mainly because the VAT return clearly states that box 6 is sales and when reading up on the reverse charge instructions I had not seen anything to advise that my purchases needed to be added to the sales box too).

I really wish that HMRC would issue clear, simple instructions for VAT returns that everyone adheres to. I was advised at a VAT inspection that I should have been including all of our sales to the US in box 6, which I had not been doing as AFAIK sales to the US are out of scope of UK VAT. I now see that QF excludes sales to the US in box 6 so presumably the VAT inspection lady gave me the wrong information. I did ask for clarification in writing (along with other enquiries), however they didn’t bother to include that in their reply (presumably because they didn’t want to admit that she was wrong).

I think in this case, as in the “exempt” sales case, the VAT lady was right and QuickFile are wrong. The official guidance for box 6 is pretty unequivocal that it should include exempt, out of scope and export sales as well as reverse charge transactions (and it says the latter have to go in box 7 as well).

For box 7 there’s a wonderfully ambiguous exclusion of “income that’s outside the scope of VAT because it is not consideration for a supply”, and from what I can tell on accounting forums opinion is divided even among accountants on whether this means all out of scope purchases should be excluded from box 7 or only some of them, and if the latter then exactly which (and why are they even saying “income” when box 7 is all about purchases, i.e. expenditure?!)