VAT in T1

Requisitions

On a requisition there are two VAT codes which are visible, the top VAT code comes from the supplier information and should match the VAT on the invoice, and the one at the bottom comes from the account code and will determine the VAT charged to the project or budget centre.

These should not be overwritten unless zero rating relief is being claimed or it is a non-UK purchase.

Sales invoicing/cash processing

Whether you are requesting a sales invoice or credit note via a form, directly entering an invoice or credit into T1 or entering a receipt, the VAT code is defaulted from the income nominal so it is important to select the correct nominal.

Difference between VAT codes X, Z and OS

Although both of these categories result in no VAT being applied to the supply, the consequence is very different between them.

Zero rating is a rate of VAT, albeit 0%, i.e. it constitutes a taxable supply. This in turn renders any supplier of zero rated goods, services liable to register for VAT. The advantage of VAT registration is that VAT can be reclaimed on costs. However, a business making solely exempt supplies is not making taxable supplies, so cannot register for VAT. Consequently, all VAT incurred upon expenditure becomes an additional irrecoverable cost.

Where a supply could be either zero-rated or exempt, zero-rating takes priority.

Zero Rated Supplies

Group 1 Food (exluding confectionery, hot food and food supplied by restaurants)
Group 2 Sewerage services and water
Group 3 Books (excluding ebooks)
Group 4 Talking books for the blind and handicapped and wireless sets for the blind
Group 5 Construction of buildings, etc
Group 6 Protected buildings
Group 7 International services
Group 8 UK public transport
Group 9 Caravans and houseboats
Group 10 Gold
Group 11 Bank notes
Group 12 Drugs, medicines, aids for the disabled
Group 13 Imports, exports, etc
Group 15 Charities, etc
Group 16 Clothing and footwear for children

Exempt supplies

Group 1 Land
Group 2 Insurance
Group 3 Postal services
Group 4 Betting, gaming and lotteries
Group 5 Finance
Group 6 Education
Group 7 Health and welfare
Group 8 Burial and cremation
Group 9 Subscriptions to trade unions, professional bodies and other public interest bodies
Group 10 Sport, sports competitions and physical education
Group 11 Works of art
Group 12 Fund-raising events by charities and other qualifying bodies
Group 13 Cultural services ― admissions to museums, exhibitions, zoos and performances of a cultural nature supplied by public bodies and eligible bodies
Group 14 Supplies of goods where input tax cannot be recovered
Group 15 Investment gold
Group 16 Supplies of services by groups involving cost sharing