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Understanding VAT codes in QuickBooks

by Intuit•45• Updated 1 week ago

Learn about common VAT codes and how to apply them to your sales and purchase forms within QuickBooks Online.

This article is for customers who use QuickBooks Online.

Before you begin

Before you begin, ensure you have set up VAT in QuickBooks Online.


What is VAT?

VAT – which stands for Value Added Tax – is a tax placed on almost all goods and services sold in the UK and EU. Whether it’s a business-to-business sale or direct consumer sale, VAT can either be added on top of a price or within the price. 

Knowing which VAT codes to apply to each product and service will help you pay the correct amount of tax and avoid any penalties when filing your VAT returns to HMRC. 

Flat Rate Scheme VAT codes
Businesses paying a flat rate usually can’t reclaim VAT on purchases (although there are some exceptions for capital assets worth over £2,000). QuickBooks Online doesn’t support the reclaiming of full 20% VAT when reselling capital goods. 

Read HMRC’s guidelines for flat rate percentages for different types of business.

Common VAT codes and rates

The standard VAT rate in the UK for most goods and services is currently 20%. VAT-registered businesses must charge VAT at the standard rate on all goods and services, unless they fall under another category. 

Check the HMRC guidelines before charging at a different rate other than standard.

Code for sales formCode for purchase form 
VAT at 20% to Box 1 
Net Sale to Box 6		VAT at 20% to Box 4 
Net Purchase to Box 7

The reduced rate may only apply to some goods and services in certain circumstances, depending on who the customer is. This reduced VAT rate applies to things like:

  • Children’s car seats and boosters
  • Insulation
  • Anti-smoking aids 

Check the HMRC guidance to understand when this rate can be used.

Code for sales formCode for purchase form 
VAT at 5% to Box 1 
Net Sale to Box 6		VAT at 5% to Box 4 
Net Purchase to Box 7

Goods and services that are categorised as 0% or zero-rated VAT are still taxable, but the VAT rate is charged at 0%. Sometimes the reduced rate only applies in certain circumstances, or it may depend on who the customer is. 

You can expect zero percent VAT on: 

  • Children’s clothes and footwear
  • Brochure and leaflet printing
  • Advertising services for charities 

Check the HMRC guidance to understand when this rate can be used.

Code for sales formCode for purchase form 
VAT at 0% to Box 1 
Net Sale to Box 6		VAT at 0% to Box 4 
Net Purchase to Box 7

This rate is used for goods and services bought in another EU country but are classed at the standard rate in the UK. 

Check the HMRC guidance to understand when this rate can be used.

Code for sales formCode for purchase form 
Not applicable+/- VAT at 20% to Box 1 and 4
+/- Net Purchase to Box 6 and 7

This rate is used for mobile phones and computer chips purchased in the UK. 

Check the HMRC guidance to understand when this rate can be used.

Code for sales formCode for purchase form 
Not applicable+/- VAT at 20% to Box 1 and 4
+/- Net Purchase to Box 7

VAT-exempt and non-taxable sales

Some goods and services are exempt from VAT or fall outside the scope of the VAT system entirely. In QuickBooks, these are typically recorded using the “No VAT” code. Knowing when to use this code helps keep your VAT returns accurate and compliant.

When VAT does not apply

VAT isn’t charged in certain situations. These sales are either considered out of scope or VAT exempt, meaning you don’t need to apply VAT on your sales forms or include them in your VAT return totals.

  • You’re not VAT registered or the transaction isn’t part of your VAT-registered business.
  • Goods or services bought or sold outside the UK or EU.
  • Goods/services for personal use, not business use.
  • Statutory fees such as MOT testing.
  • Transport tolls (e.g. bridges, tunnels, roads).
  • Charity donations or welfare services provided by charities.

Check the HMRC guidance to understand when this rate can be used.

Code for sales formCode for purchase form 
Not applicableNot applicable

Goods and services that are VAT exempt

These are items that cannot be taxed under VAT rules. They are still business transactions but fall under special categories that qualify for exemption.

Goods and services that are VAT exempt are not taxable. This means that no VAT can be charged on them. These typically include:

  • Insurance
  • Medical health treatments
  • Sponsored charity events
  • Educational courses and training
  • Sales to certain nonprofit organisations (with valid exemption documentation)
  • Raw materials used in the production of other goods
  • Wholesale purchases for resale (VAT is applied at the consumer level)

Special rules apply for businesses that are exempt or partly exempt. Check the HMRC guidance to understand when this rate can be used.

Code for sales formCode for purchase form 
No VAT
Net Sale to Box 6		No VAT
Net Purchase to Box 7

EC VAT codes and rates

EC stands for European Commission.

If your business is VAT-registered and you buy goods or services from another VAT-registered business in another EC Member State, you shouldn’t be charged VAT, as long as you give the supplier your VAT registration number. 

The supplier will be responsible for using the reverse charge method to render the charge nil. The buyer is then responsible for recording the VAT transaction for those particular goods or service. This way, it eliminates the need for merchants to register in the country where supply is made.

Suppose you are the supplier and you are shipping goods to customers in an EC Member State, you shouldn’t charge VAT if they provide you with a valid VAT registration number. As their supplier, you need to use the reverse charge method to make the VAT nil. 

Make sure you include the words ‘reverse charge’ on the invoice to fulfill the legal requirement. Here are some examples from HMRC:

  • Reverse charge: VAT Act 1994 Section 55A applies
  • Reverse charge: S55A VATA 94 applies
  • Reverse charge: Customer to pay the VAT to HMRC

If you didn’t receive a valid VAT number, use the correct VAT rate. For transactions that qualify, use one of the following EC VAT rates.

For business to business transactions, the customer must pay any VAT using the reverse charge mechanism. The customer must act as though they are both the supplier and recipient of goods.

Code for sales formCode for purchase form 
Not applicable+/- VAT at 20% to Box 2 and 4
+/- Net Purchase to Box 7 and 9

In business to business transactions, the customer must use the reverse charge mechanism to account for any VAT due. The customer must act as though they are both the supplier and recipient of services.

Code for sales formCode for purchase form 
Not applicable+/- VAT at 20% to Box 1 and 4
+/- Net Purchase to Box 6 and 7

Used for the Intra EU business to business sale of goods. If the EU customer is not VAT-registered, charge them the appropriate UK VAT rate.

Code for sales formCode for purchase form 
Net Sale to Box 6 and 8+/- VAT at 0% to Box 2 and 4
+/- Purchase to Box 7 and 9

Used for the Intra EU business to business sale of services. Charge the applicable UK VAT rate if the customer is not VAT-registered. 

It’s critical to note the location where the services are supplied:

  • For business to business, the place of supply is the location of the customer (receiver of services). 
  • For business to consumer, the place of supply is the location where the provider (business) is based.
Code for sales formCode for purchase form 
Net Sale to Box 6 +/- VAT at 0% to Box 1 and 4
+/- Purchase to Box 6 and 7

Used for B2B transactions for the sale and purchase of mobile phones and computer chips within the EU.

Code for sales formCode for purchase form 
Net Sale to Box 6 Not applicable

Domestic reverse charge for CIS

The domestic reverse charge applies to companies that operate within the Construction Industry Scheme (CIS). Under the CIS reverse charge, it is the customer receiving the specified supplies or goods who will need to account for the VAT due to HMRC instead of the paying it to the supplier. 

The following codes are only available on transactions made on or after 1 March, 2021.

Code for sales formCode for purchase form 
Net Sale to Box 6 VAT at 5% to Box 1 and 4
Net Purchase to Box 7
Code for sales formCode for purchase form 
Net Sale to Box 6 VAT at 20% to Box 1 and 4
Net Purchase to Box 7

Postponed VAT Accounting (PVA)

Postponed VAT Accounting is a way for UK VAT-registered businesses to account for import VAT after Brexit. PVA gives businesses the option to account for and recover VAT on imported goods on their VAT return rather than paying it immediately upon entry of the goods in the UK.

You can account for import PVA if you are a VAT-registered business that imports goods for business use into the UK. Since Northern Ireland is still part of the EU VAT area, the reverse charge will still apply, not the PVA scheme. For imports from anywhere in the world, you can postpone the VAT.

Code for sales formCode for purchase form 
Not applicableBox 1 - Include the VAT due from postponed VAT accounting.

Box 4 - Include the VAT reclaimed on imports from postponed VAT accounting scheme.

Box 7 - Include total value of all imported goods excluding VAT.
Code for sales formCode for purchase form 
Not applicableBox 1 - Include the VAT due from postponed VAT accounting.

Box 4 - Include the VAT reclaimed on imports from postponed VAT accounting scheme.

Box 7 - Include total value of all imported goods excluding VAT.

Hospitality, holiday accommodation and attractions industry

Back in July 2020, in response to the COVID-19 pandemic, the government announced a temporary VAT rate of 5% for certain supplies within the hospitality sector. Instead of increasing the 5% VAT rate back to 20% the government offered a new temporary rate of 12.5% until 31 March, 2022. 

The normal 20% standard VAT rate was reinstated on 1 April, 2022.

Code for sales formCode for purchase form 
VAT to Box 1
Net Sale to Box 6		VAT to Box 4
Net Purchase to Box 7

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