VAT - 31.01.2012

VAT treatment for a non-registered supplier

One of our subscribers has recently started dealing with some small suppliers whose goods and services are potentially VATable but they are not VAT registered due to their turnover being under the threshold.

His query was that when posting the invoices into his accounting system (Sage in this case), should he treat the invoices as “zero-rated” (VAT code T0 in Sage), “exempt” (T2) or “outside the scope of VAT” (T9)? He was concerned that coding them as T9 would mean that Sage would not include the expense in Box 7 (net purchases) of the VAT return.

None of the above! HMRC has confirmed that purchases from non-registered suppliers who make VATable supplies are neither exempt nor zero-rated but should be included in Box 7 of the VAT return. So using the “outside the scope of VAT” code in your accounting system will still give you the wrong outcome as the expense will be missing from Box 7.

Tip. If your accounting system doesn’t have a ready-made VAT code for VATable purchases from non-registered suppliers, then it should be relatively easy to create one.

Example. On Sage you could set up, say, T3 with a 0% VAT rate for this purpose. Alternatively, use T0 unless you need to know your zero-rated split for partial exemption reasons.