I posted a question in our free Sage 50 Accounts support group on a topic that I know causes much debate!
The question was:
“What Sage tax code do YOU use for suppliers not VAT registered?!”
The post had 106 comments!
So, what tax code should you use for suppliers who are not VAT registered? Should the amount, which has no VAT, appear on your VAT return or not?
Let’s say you have a supplier who is a window cleaner but they are not VAT registered. How should you record this on Sage 50 Accounts?
Let’s talk tax codes for a moment
Here are some of the T codes in Sage (based on the default tax codes):
T0 – Zero rated transactions at 0%
T1 – Standard rated transactions at 20%
T2 – Exempt transactions
T9 – Outside the scope of VAT
Psst… you can grab my Sage 50 Tax Code Guide here.
If we have a window cleaner, who is not VAT registered, none of the Sage tax codes above apply (I know there are some of you that disagree)!
Say what?! Bear with me here…
The transaction is neither zero-rated nor standard rated (although it would be if they were VAT registered!) and it is neither exempt nor do we believe it is outside the scope for VAT, as in the window cleaner case, if they were VAT registered they would charge VAT and it would go on a VAT return!
So, what tax code should you use for suppliers not VAT registered when posting to Sage?
For many years (more than I’d like to remember!), when we train users of Sage this is a question that crops up all the time.
So, our recommendation is to create a dedicated tax code* for suppliers not VAT registered (we always suggest T10) and flag that it should be included in the VAT return. This will report the figure in box 7 on your VAT return.
* For a step-by-step walk-through of how to create a new tax code, see the end of this article.
Now, I know there is a lot of conflicting advice on this topic.
So, because of this reason, I had one of my team call the HMRC VAT Helpline on three separate occasions and speak to three different people on the VAT Helpline to ask them this question:
“Should an invoice from a supplier who is not VAT registered be reported on the VAT return in box 7?”
These were the answers (these calls were spaced out throughout the day):
Person A: Yes as this is a purchase
Person B: Yes
Person C: No*
We also asked the same three people this question on the same call:
“How would you term that type of transaction for non-VAT registered businesses?”
These were the answers we were given:
Person A: Not applicable
Person B: Outside the scope
Person C: Exempt as not VAT registered
No wonder everyone is confused!!
When we asked our community what code they use, here are the results:
64% of people surveyed use T0
2% of people surveyed use T1 and zero out the VAT
7% of people surveyed use T2
26% of people surveyed use T9
Codes T0, T1 with the VAT zeroed out and T2 will all report this supplier invoice in box 7 on your VAT return. T9 will not include this on your VAT return.
So, 74% of people surveyed said they use a code that reports this type of transaction on their VAT return in box 7.
If you choose to set up a new code*, as we do, like T10 and tick to include it in your VAT return, this will also report in box 7 on your VAT return.
* We’ve written some guidance on how to set up a new tax code in Sage 50 Accounts at the end of this article.
Here’s my Sage 50 Accounts tax code advice…
Choose a tax code and stick with it. Consistency is key.
I should point out, that if you’ve had advice from a VAT inspector, HMRC or your accountant and they have advised you to use a particular code, then of course you have the choice to stick with what they have advised.
We hope you’ve found this article insightful and helpful!
Love Bec x
aka “The Sage Lady”
To create a new tax code for suppliers VAT registered, just follow these steps
To do this, in your Sage 50 Accounts software, go to the Settings menu and then Configuration > Tax Codes.
Then scroll down and select the tax code you want to use (we will use T10 in this example):
Then click Edit (or double left click) – this will open the Edit Tax Code window as below:
To create this code for ‘Suppliers not VAT registered or no VAT receipt’ simply enter a description and tick the ‘Include in VAT Return’ tick box. This will ensure that it gets reported in box 7 of the VAT with purchases net of VAT (don’t worry, it won’t attract any VAT).
Once you’ve updated this, it should look like this:
Date published: 26/4/22
Disclaimer: Sage Accounts Solutions Limited will not be held responsible for any loss or damage caused as a result of the information contained herein.