Is there way to differentiate between zero & outside scope VAT when entering purchase invoices? So that the outside scope purchases don’t show up in the VAT return report.
Thanks.
You will need to manually adjust the VAT return, simply click the ‘Red Arrow’ to adjust box 6 on your VAT return by the amount of sales outside the scope.
The example below shows an adjustment of £1000.00 for sales outside the scope of VAT:
Thanks for your reply. The accounts I’m working with at present are extremely simple so that’s possible.
Purchases or sales invoices?
I have just completed my first return, our sales are out of scope of VAT but according to the HRMC website they need to be included in the VAT return within the total sales. I have manually adjusted but is there a plan to include them in the VAT return at some point.
Out of Scope items (typically those items sold outside the EEA) should not feature on the VAT return at all. Do you mean zero rated?
No, it is sales outside the EU so out of scope, but I am following the HRMC guidance on VAT returns which shows for Box 6
3.7 Filling in box 6
Box 6 Total value of sales and all other outputs excluding any VAT
Show the total value of all your business sales and other specific outputs but leave out any VAT. Some examples are:
zero-rate, reduced-rate and exempt supplies
fuel scale charges (see Notice 700/64 Motoring expenses)
exports
supplies to other EC Member States (that is any figure entered in box 8)
supplies of installed or assembled goods in the UK where the overseas supplier registers for VAT here
distance sales to the UK which are above the UK distance selling threshold or, if below the threshold but the overseas supplier opts to register for VAT in the UK
reverse charge transactions (see paragraph 4.6 )
supplies which are outside the scope of UK VAT as described in Notice 741A Place of supply of services
deposits for which an invoice has been issued
However, you do not include in box 6 any of the following:
money you have personally put into the business
loans, dividends, and gifts of money
insurance claims
Stock Exchange dealings (unless you are a financial institution)
Out of scope means it’s completely out of scope for UK VAT, so it wouldn’t feature in box 6 or anywhere else on your VAT return. The list of exemptions in the guidance are only applicable to VAT transactions within the scope of UK VAT.
Hello Glenn,
I am facing a similar issue where goods are sold & exported to a business customer outside EC (specifically Iceland). I have setup the client as “Exempt or Outside Scope of VAT Purpose” in the client management area & therefore items are marked as “No VAT” & at the bottom of the invoice as “Out of Scope”
On speaking to HMRC, they confirmed that the sales amount should go in Box 6, as it becomes part of the “Total Sales” of the UK Vat registered business. The advisor also explained that - It would not go into box 6, if goods were exported from a third country. So I assume most UK business selling outside EU will need to report it as part of sales in Box 6.
When I check my VAT return, it doesn’t pick up outside EU sales invoices to put them in Box 6.
My questions is - Is manual adjustment only option at the moment ?
I have another questions, not related to VAT. If the sales are outside EU & if clients are set up in that manner, then I notice that QF has two separate accounts - “General Sales” & General Export Sales", will it be possible to automatically put them General Exports Sale 4100 instead of General Sales 4000 as at the moment, I believe all sales goes into General Sales". I know that it will be possible to pass a journal entry to achieve the same result, but just to automate the process.
I look forward to your reply. Thanks in advance.
Regards
Rahul
If you refer to the following HMRC guidance:
Specifically…
Box 6 Total value of sales and all other outputs excluding any VAT. Some examples are:
supplies which are outside the scope of UK VAT as described in Notice 741A Place of supply of services.
Here is a definition of a Place of Supply Service. Any other non-UK non-EC items therefore should not be included anywhere on your VAT return.
where the place of supply of services is in a Member State of the European Community (EC), that supply is subject to the VAT rules of that Member State and not those of any other country. If the Member State is not the UK, such supplies are said to be ‘outside the scope’ of UK VAT
where the place of supply of services is outside the EC, that supply is made outside the EC and is therefore not liable to VAT in any Member State (although local taxes may apply). Such supplies are said to be ‘outside the scope’ of both UK and EC VAT
Regarding the sales nominal code…
I don’t think it would be wise to default any sales for non-UK customers to “General Export Sales”. Exports tend to relate to physical goods and not services so I’m sure many users wouldn’t want this as a default behaviour. I may be wrong so I will leave it open for further discussion.
Hello Glenn,
Hi Glenn,
I may be wrong but I believe you have pointed out guidance on “services”, whereas I was referring to exports of physical goods. I made a second call to HMRC & once again they confirmed that any sales of goods or services (whether vatable or not), needs to be reported in box 6. Anyway I will double check with my accountant too & if the need be will manually adjust the return. I just thought to highlight this if anyone else was facing the same issue as then it might be a good reason to automate this in QF.
With regards to nominal code, once again I am referring to exports of physical goods to be accounted as General Export Sales. But I can understand that not everyone will need this feature & I can always pass a journal entry.
Thanks for your comments.
Regards
Rahul Gala
Unfortunately there are a lot caveats with VAT accounting, it’s one of the most complex areas of our system. Even HMRC have been known to issue contradictory advice over the phone, so I would always go by the official documentation on the HMRC and GOV.UK websites.
At the moment we don’t differentiate between goods and services in QuickFile so some scenarios may not be automatically handled, even with Goods and Service differentiation you still have to contend with “Place of Supply” rules which are numerous.
Due to these complexities we can’t commit to automate every VAT scenario, so we let user manually adjust where necessary. Although this is not ideal, it helps us to avoid bloating out the system trying to accommodate for the ever changing rules and directives.
I’m also having the same problem.
I’ve been told by HMRC that export sales should be submitted on VAT returns. Your system excludes invoices from VAT returns if they are marked “out of scope”. The only way I can now get export sales on the VAT return is if I do not use the “out of scope” feature but it means that they end up under general sales with 0 VAT. Which isn’t right either.
HMRC was very clear that they needed to be on the VAT returns.
You really need to address this problem because it’s not possible to use your system for exports otherwise.
“Out of Scope”, means out of scope for UK VAT. I’ve never heard of Out of Scope items appearing on a VAT return?
Do you have any HMRC guidance that supports this?
I had a VAT compliance check with HMRC and the officer told me to include out of scope sales on VAT returns.
On the HMRC web site it says for box 6 to include:
supplies which are outside the scope of UK VAT as described in Notice 741A Place of supply of services.
I’m supplying services to companies in the USA, so not actual goods or items. But I’m a bit unsure now about his advice after reading your previous posts. I don’t understand the wording in Notice 741A either that you quoted.
Just had a letter back from HRMC, it says the following:
Further to my visit the following issues arose;
Outside the scope supplies were left out of box 6 on the VAT return - this was the income for marketing services; please could you include this income on your VAT return in the future. This will make no difference to your tax liability. Please refer to VAT notice 700/12, section 3.7 for details.
Could you please change how your system treats this?
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We can definitely look into this although we need to be careful and seek further consultation before implementing such a change as it would certainly cause continuity issues with existing users.
You may want to direct the assessors attention to the following (src - VAT: how to work out your place of supply of services) as it does seem to contradict his/her advice:
If you are in the UK and the place of supply of your service is in another EU country, you don’t pay UK VAT. However, for some supplies, you may need to register and account for VAT in the country of supply. You will need to check with the tax authority in that country to find out how to treat the services you are supplying. A list of EU VAT contacts can be found in Notice 725.
If the place of supply of your service is not in the EU you don’t have to charge EU VAT or include the sale on your VAT Return.
If you have a formal request from HMRC to include OOS items in box 6 then I would go ahead and do this. We can’t change the way the system deals with box 6 at the moment but what you could possibly do is just raise these as normal invoices with 0% VAT this will keep your VAT calc the same but include the supply on box 6.
That’s what I’m doing at the moment. Rather not go against HMRC.
Box 6 has been the subject of much debate, if you Google this you’ll see differing opinions. The HMRC guidance certainly needs to be looked at. I will ask our accounts dept. to seek further clarification from HMRC but in the mean time I would suggest just zero-rating.
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Sorry, I know this is an old thread but I am having the same problem. Both HMRC and my accountant have told me to include sales of services to my USA clients in box 6 even though they are out-of-scope for VAT and Quickfile doesn’t do it automatically for me. I was hoping it would.
Was there any conclusion as to whether or not Quickfile should be doing this?