VAT - Problem with Exempt and Out of Scope Settings

Hi Everyone,
We have encountered an obstacle with our first MTD VAT Return submission and would be really grateful for some assistance or advice. Our problem centres around the inclusion/exclusion of ‘Exempt’ and ‘Out of Scope’ transactions. We have been using QuickFile for quite some time but, for reasons I won’t bore you with, we had previously been calculating and submitting our VAT returns manually, so this was not previously an issue.

We have always processed Directors’ expenses through Quickfile, treating them as effectively payments to suppliers, when tagging the bank transactions. Each Company Director has a separate Supplier record of their own. When processing expenses, we first create a purchase order for each monthly expense claim and each of these POs includes line items for each expense item and its corresponding classification e.g. ‘Travel’, ‘Miscellaneous Motor Expenses’ ‘Subsistence’ etc. We then Tag each monthly expense claim bank transaction, linking the transaction to its corresponding PO. Both our accountancy firm and QuickFile themselves had originally indicated to us that this approach should be fine for processing expenses.

For the purpose of VAT returns, Director Expenses should be treated as ‘Out of Scope’, so we simply excluded these figures when we calculated our VAT returns manually. The supplier records set up for processing the Directors Expenses are set to ‘Exempt or out of scope for VAT purpose’. The trouble is (as I understand it), VAT ‘Exempt’ items are supposed to be included within the VAT Box 7 totals, whilst ‘Out of Scope’ items are not supposed to be included in VAT return figures at all.

The expenses of our directors are now consequently erronesouly appearing in the QuickFile calculated VAT return, because the QuickFile configuration setting within the Supplier Record is treating Exempt and Out of Scope as effectively the same thing, which should not really be the case.

Can anyone advise how we should be addressing this situation? Ideally, instead of Quickfile treating ‘Exempt’ and ‘Out of Scope’ as the same, the available options should be as follows:

VAT Registered in another EC Member State
Exempt for VAT purpose
Out of Scope for VAT purpose
No special VAT treatment

Not only would such options solve our problem, but it would also provide flexibility around the debate as to whether purchases from a supplier who is not registered for VAT should be treated as ‘Zero Rated’ (i.e. configured as ‘No Special VAT treatment’ and set to 0%) or ‘Out of Scope’, meaning the items should not appear at all. I do not claim to be any sort of expert in this area but, upon Googling the topic, there appears to be a fair amount of confusion and/or disagreement on it.

However, maybe the problem we currently face is simply that we should have been processing Directors’ Expenses in a different way and we therefore need to change our approach. Any prompt assistance would be very much appreciated, as we have to submit our VAT return by close of business on 07/09/19.

Kind regards,

Steve

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