Client Responsibilities

Clients must ensure both the accuracy and completeness of data, and the timeliness of VAT Returns to their respective tax authorities. The information in this article is intended as a guideline only. Always check with the relevant tax authority or professional for any clarification. 

VAT at the margins is complex (EU and Non-EU Goods and Services Trading) and subject to constant revision and varying interpretations depending on the country. Note that in some cases, you may have to register for VAT in other EU countries and account for VAT there.

See:

Value-Added Tax (VAT) (revenue.ie) 

Charge, reclaim and record VAT (gov.uk) 

VAT - European Commission

VAT Reporting: Invoice vs Cash basis

The system allows for the recording and reporting of VAT on both the Invoice basis and the Cash basis according to UK and Irish rules respectively:

• Invoice Based:  The VAT Return is based on the value of the VAT associated with Sales and Purchase Invoices (and Credit Notes).
• Cash Based:
  • UK: The VAT Return is based on the VAT values associated with total Sales Receipts less total Purchase Payments.
  • Ireland: The VAT Return is based on the value of the VAT associated with total Sales Receipts less the VAT associated with Purchase Invoices (and Credit Notes).

See:

11.7 Tax Reports - AIQ Academy

Creating Entity VAT Returns (UK & Ireland) 

Submitting Entity VAT Returns via MTD (UK) 

Setting up MTD for Group VAT Returns (UK) 

Submitting Group VAT Returns (UK & Ireland) 

Ensure you have the appropriate coding and have assigned any necessary defaults. 

Prerequisite: VAT Code Setup

The client is responsible for correctly identifying and recording transactions against the appropriate VAT rates relating to EU and non-EU Sales and Purchases. Our system comes with pre-supplied VAT rates for both Irish and UK based companies (see section ‘Pre-Supplied VAT Rate Table’) that you can modify and expand as needed.

To view, edit, and add new codes, go to Setup > Codes maintenance > Taxes and follow the instructions detailed under General Ledger Codes: Tax Codes.‍  

Prerequisite: VAT Control Account Code Setup

The GL Control Account Codes for VAT hold respective tax transactions and balances. Check if the appropriate Sales and Purchase VAT GL Control Accounts were created during Company setup. 

To create further system accounts or edit existing accounts, follow the instructions under General Ledger Codes: System Accounts. ‍  

Optional: Assign VAT Code Defaults

Allocate defaults to save time and increase consistency as follows:

• Item: Follow the instructions to add Tax Code defaults to Items. This default can be overridden at default stage.
• Customer or Supplier: Follow the instructions to add Tax Code defaults to Customers or Suppliers. This default will take precedence over the Item default VAT Code, but you can override it at data entry stage. 

See:

Using Codes Maintenance 

Managing Customer Master Records 

Managing Supplier Master Records 

Managing Items Master Records 

Managing Default Settings 

Our system comes with comes with pre-supplied VAT Codes that you can modify and expand as needed for both Irish and UK based companies:

Some of your Customers and/or Suppliers may be exempt from VAT because of their size or special status. Goods or services, both bought or sold, can also be made exempt. 

See:

 Exemption and partial exemption from VAT

Step One: Set up an exempt tax code 

Set up a Tax Code‍ for use in these specific cases. Tick Exclude to ensure that transactions carrying this Tax Code are not included in the Gross Sales or Gross Purchases on your VAT Return.

Step Two: Nominate Customers, Suppliers, or Items as Exempt

1. In the relevant master record, complete the following:
   • Customers/Suppliers: In the Finance Settings tab enter the Exempt Tax Code you just set up as the Default Tax Code. Tick Use Tax Code. This will ensure that the Tax Code is mandatory and not just a default. Any transactions raised against the selected Supplier, or Customer will now carry this rate of Tax (0.00%) and will not be included in the VAT Return.
   • Items: In the Defaults tab, enter the exempt Tax Code. Ordinarily, the VAT Code carried on the Item Master Record will override the Vat Code from the Supplier or Customer Master. However, if Use Tax Code was checked in the Customer or Supplier Master Record, that code takes precedence.
2. Click Save. 

Excluded transactions, also called Out of Scope transactions, are not the same as transactions already included on previous VAT returns. They should not be on your VAT Return by their very nature. 

These transactions should carry the NT Code and have the Exclude checkbox ticked. Transactions carrying this VAT Code will not appear anywhere on your VAT Return.

Examples include: 

• Business Rates
• Congestion Charges
• Fines
• Insurance Claims
• Loan Repayments
• MOT/NCT Fees 
• Road Tax
• Water Charges UK only (Commercial water charges are taxable, domestic water charges are out of scope in EU)

Local transactions are transactions raised against customers and suppliers based in your country. They can be for both goods and services. Credit Notes work similarly to Invoices but instead act negatively on the relevant boxes in your VAT Return. 

Sales to Registered and Unregistered Customers: 

Use the Tax Codes V01, V02, V03, V04 and V06 in the standard pre-supplied VAT Rate table as appropriate for the goods or services in question. Transactions carrying these Tax Codes are directed to Box 1 and Box 6 of your VAT Return.

Purchases from Registered Suppliers: 

Use the Tax Codes V11, V12, V13, V14 and V15/V16 in the standard pre-supplied VAT Rate table as appropriate for the goods or services in question. Transactions carrying these Tax Codes are directed to Box 4 and Box 7 of your VAT Return.

Purchases from Unregistered Suppliers:   

These Purchase Transactions will not include VAT so use the Tax Code NT and tick Exclude (see section on Exempting above). These transactions are outside the scope of both UK and EU VAT so you should not include them in Box 7 of your VAT Return.

See:

VAT rates on different goods and services - GOV.UK

Send a VAT Return (UK)

For the case of NI, see VAT on movements of goods between Northern Ireland and the EU.

Sales of Goods to EU-Registered Customers (Exports):

Sales to EU countries are now treated as exports rather than intra-community supplies and the transaction is generally zero-rated for VAT purposes under the UK export rules. 

Proceed as follows:

• Use the zero-rated VAT Code, V05 in the standard pre-supplied VAT table and check EU Trade. Transactions carrying this V05 VAT Code are directed to Box 6 on the VAT Return. 
• Show the Customer’s VAT Registration Number on your Invoice, including the two-letter country prefix. Check the VAT Registration Number for validity using the VAT (Tax) Information Exchange System (VIES). If you don’t validate the VAT number, the transaction might not be eligible for the zero-rated treatment.
• UK businesses must submit Intrastat declarations for the movement of goods between the UK and the EU, but only if the value of goods exceeds certain thresholds. 

Sales of Goods to Unregistered EU-Customers (Exports): 

Apply the appropriate tax rate for the goods in question as if the customer were local. Check EU Trade as post-Brexit this counts as an export.

As most sales in this category are treated as if they were local sales, they are directed to Box 1 and Box 6 of the VAT Return. You should not include them in Box 8. 

See:

 Exports, sending goods abroad and charging VAT

Purchases of Goods from EU-Registered Suppliers (Imports):  

Purchases from EU suppliers are now imports, not acquisitions. Note the following:

•  UK VAT is not charged on the invoice, but import VAT is due at customs.
•  Check Postponed VAT Accounting (PVA) to self-account for VAT on imports from the EU.
• These imports should be reported in Box 1 and Box 4 but are not included in Box 2 or Box 9 (which were previously used for EU acquisitions).

Purchases of Goods from Unregistered EU-Suppliers (Imports): 

As the supplier is not VAT-registered, they cannot charge VAT on the invoice. The purchase is treated like a purchase from a local unregistered supplier (i.e., no VAT to account for).

Use NT and do not include it in Box 7 or Box 9 of the VAT return.

See:

 Paying VAT on imports from outside the UK to Great Britain and from outside the EU to Northern Ireland

Sales of Services to EU Customers: 

These are some general rules:

• B2B (Business-to-Business): 
  • The place of supply is still where the customer is established, so UK businesses do not charge UK VAT (outside the scope). 
  • There is no EC Sales List requirement anymore. 
  • Sales to EU businesses are outside the scope of UK VAT and not included in Box 6.
  • B2B digital service sales are generally treated under the reverse charge mechanism (no UK VAT is charged). 
• B2C (Business-to-Consumer): 
  • The UK supplier must charge UK VAT unless the customer is in a country where a local VAT registration is required. 
  • Digital services to EU consumers (where VAT is due) must be handled via EU VAT registration or an intermediary country as they are now subject to the EU VAT MOSS system of which the UK is no longer a part.

See:

 Work out your place of supply of services for VAT rules

Purchase of Services from EU Suppliers: 

For services from an EU supplier:

• The reverse charge applies.
• Use Code V20.
• The UK business self-accounts for VAT at the local rate (same as if purchased from a UK supplier).
• The VAT is reported in Box 1, Box 4, Box 6, and Box 7.
• If an EU supplier charges VAT, UK business cannot reclaim it on the UK VAT return. Instead, it must be reclaimed via the EU VAT Refund Scheme which is now handled separately for UK businesses post-Brexit. 
• For UK VAT reporting, the transaction is treated as NT.

For the case of NI, see VAT on movements of goods between Northern Ireland and the EU.

Sales of Goods to EU-Registered Customers (Exports):   

• Do not charge VAT on your invoice. Instead, that business must self-assess the VAT (via the reverse charge mechanism) at their country's appropriate rate on the goods in question.
• Use the zero-rated VAT Code, V05 in the standard pre-supplied VAT table. Transactions are directed to Box 6 and Box 8 on the VAT Return.
• Check EU Trade. 
• Show the Customer’s VAT Registration Number on your Invoice, including the two-letter country prefix. Check the VAT Registration Number for validity using the VAT (Tax) Information Exchange System (VIES). If you don’t validate the VAT number, the transaction might not be eligible for the zero-rated treatment.
• Along with your VAT Return, you must submit an EC Sales List detailing the transactions with EU VAT-registered customers. 

Sales of Goods to Unregistered EU-Customers (Exports): 

Apply the appropriate tax rate for the goods in question as if the customer were local. Do not check EU Trade unless the sale exceeds the distance selling threshold for the country in question.

Most sales in this category are treated as if they were local sales and directed to Box 1 and Box 6 of the VAT Return. You should not include them in Box 8. 

Purchases of Goods from EU-Registered Suppliers (Imports):  

Note the following:

• If you provide your Irish VAT number, the EU-registered supplier should zero-rate the invoice under the reverse charge mechanism.
• You must self-account for VAT as if you had been charged by a local supplier (Acquisition VAT).
• Check EU Trade and Reverse Charge.
• The correct VAT code should be applied, such as V05 or V15 for local VAT rates. 
• When reporting, the purchases are directed to Box 2, Box 4, Box 7 and Box 9.

Purchases of Goods from Unregistered EU-Suppliers (Imports): 

If the supplier is not VAT-registered, they cannot charge VAT on the invoice. The purchase is treated like a purchase from a local unregistered supplier (i.e., no VAT to account for).

Use Code NT. The purchase does not need to be included in Box 7 or Box 9 of the VAT return.

Sales of Services to EU-Customers: 

These are some general rules:

• B2B (Business-to-Business): 
  • Under the reverse charge mechanism, the place of supply is where the customer is established so the customer self-accounts for VAT. 
  • The Irish supplier does not charge VAT but must report the sale in Box 3. Do not include it in Box 1.
  • Include it in the EC Sales List. 
• B2C (Business-to-Consumer): 
  • The general rule is that Irish VAT must be charged (except for certain electronically supplied services, which fall under the OSS scheme). 
  • If selling digital services (e.g., web hosting, software, online courses) to EU consumers, Irish suppliers must charge VAT at the customer’s local rate and report it under the One Stop Shop (OSS) system. This is reported in Box 1 and Box 6 of the VAT return.

Purchase of Services from EU-Suppliers: 

For services from an EU supplier:

• The reverse charge applies under the EU VAT Directive.
• The Irish business self-accounts for VAT at the local rate (treating it as both output and input VAT).
• The transaction is recorded in Box 1, Box 4, and Box 7 of the Irish VAT return.
• If the EU supplier incorrectly charges VAT, the Irish business cannot reclaim it via the Irish VAT return. Instead, the business may claim it via the EU VAT Refund Mechanism. 
• Use Code NT for Irish VAT return purposes.

Sales of Goods to Non-EU Countries (Exports) 

Since Brexit, sales to both the EU and non-EU countries are treated as exports.

• Exports are zero-rated for VAT (subject to retaining export documentation). You must retain proof of export (such as shipping documentation) to justify the zero-rating in case of an audit.
• A zero-rated VAT code (e.g., V03) should be used, not NT (which is for out-of-scope transactions).
• The net value of the sale should be reported in Box 6 of the UK VAT return. Do not include in Box 8 or Box 9 which are for intra-EU transactions, no longer relevant for UK VAT.

See:

 Exports, sending goods abroad and charging VAT

Purchases of Goods from Non-EU Countries (Imports):  

Since Brexit, all imports (EU and non-EU) are treated the same.

• VAT is not charged by the non-UK supplier, but UK import VAT and customs duties apply.
• Do not use NT (out-of-scope). Use a zero-rated import VAT code (e.g., V04 or V05). 
• The purchase value should be reported in Box 7 of the UK VAT return.
• Businesses can use Postponed VAT Accounting (PVA) to defer payment and self-account for VAT in their return. 
  • If PVA is used, VAT is reported in Box 1 and Box 4, neutralizing the effect on cash flow. 
  • If PVA is NOT used, import VAT must be paid upfront to HMRC, and a C79 certificate is needed to reclaim it later.

See:

 Paying VAT on imports from outside the UK to Great Britain and from outside the EU to Northern Ireland

Sales of Services to Non-EU Countries  

Most B2B services to overseas customers are outside the scope of UK VAT, but HMRC guidance often recommends zero-rating to ensure correct VAT reporting.

The net value of services should be included in Box 6 of the UK VAT return.

Purchases of Services from Non-EU Countries:  

Note the following:

• No VAT is charged by the supplier, but the UK business must self-account at the appropriate UK VAT rate as if it had supplied the service itself.
• A Reverse Charge VAT Code (e.g., V20 or equivalent) should be used.The reverse charge applies to most services purchased from overseas suppliers.
• The transaction should be reported in Box 1, Box 4, Box 6, and Box 7.

Sales of Goods to Non-EU Countries (Exports): 

Note the following:

• Exports of goods to non-EU countries are zero-rated for VAT. Businesses must retain proof of export for audit purposes.
• Use a zero-rated VAT code (e.g., V03) not NT (which is for out-of-scope transactions).
• The net value of the sale should be reported in Box 2 of the VAT return. Do NOT include in intra-EU reporting boxes.

Purchases of Goods from Non-EU Countries (Imports):  

Note the following: