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Level 1

Correct VAT Codes for European VAT-Registered Customers...confirmation of some common situations & advice on an unusual situation.

Correct VAT Codes for Trading with Europe

Most of our suppliers are European based and most of our customers are in the UK and Republic of Ireland.  However, we also have an unusual situation where I need some help please.

First, can you please confirm the following assumptions are correct:

Purchases:

When we purchase goods from a UK VAT-registered supplier, the VAT code that we should use is S (Standard VAT).  This is reclaimed from HMRC.

When we purchase goods from a European VAT-registered supplier, the VAT code that we should use is EGZ (European Goods Zero rated).  No VAT is charged / reclaimed.

When we purchase goods from a non-European supplier (i.e. China, Thailand, etc.) the code we use is O (Outside the scope of VAT).

Sales:

When we supply goods to a UK based, VAT-registered customer, the VAT code we should use is S (Standard).  The customer will claim the VAT back in their VAT return, and we pay the VAT portion to HMRC.

When we sell goods to a European based VAT-registered customer, the VAT code we should use is EGZ (European Goods Zero).  No VAT is charged.

If we export outside the EU, we should use the O code (Outside the Scope of VAT)

Unusual Situation:

We have a Spanish VAT-registered client, for whom we purchase a product in the UK and then ship that product to their UK customer base, as a welcome gift.  Our customer is a content provider, so doesn't want to be involved in physical products.

We are charged VAT by the UK supplier of that gift and we recharge the cost of the gift to our Spanish client at cost (no profit is made).  We also charge our Spanish client for the fulfilment service, where we do make a profit.

Having consulted HMRC, we were advised that there is both a goods and services element to this business arrangement.  For the "goods" element, we should charge our Spanish customer UK VAT, since the goods are not exported to Spain.  However, for the service element, we should not charge VAT, as the service is performed for a European VAT-registered customer.

On our initial "goods" invoices, I charged VAT at the standard rate (using the S code). However, this appears to have messed up our EC Sales & VAT returns.  Therefore, should I use another code...for example, ESS (European Sales Standard)?  

If so, when one opens the setup details of this VAT code, which "VAT Item for Sales" should be used?  Currently, under ESS, the "VAT Item for Sales" is blank, and the "VAT Item for Purchases" is set to EC Purch Services 20.0% Group.  That Group appears to have two items charged: Standard Sales @20% and EC Purch Services Standard @-20%.

Thanks!

R

Solved
Best answer February 07, 2019

Accepted Solutions
Highlighted
Level 4

Correct VAT Codes for European VAT-Registered Customers...confirmation of some common situations & advice on an unusual situation.

Lets do it one bit at a time, also please use manage vay so you can see the posting which helps explain it all.

  • Purchases:

  • When we purchase goods from a UK VAT-registered supplier, the VAT code that we should use is S (Standard VAT).  This is reclaimed from HMRC

Correct

  • When we purchase goods from a European VAT-registered supplier, the VAT code that we should use is EGZ (European Goods Zero rated).  No VAT is charged / reclaimed.
Correct in QB 2014, older versions used EGS

  • When we purchase goods from a non-European supplier (i.e. China, Thailand, etc.) the code we use is O (Outside the scope of VAT).
Correct for Purchases when entering the bill it is code O but remember that the Vat paid on import related the bill is code S

  • Sales:
  • When we supply goods to a UK based, VAT-registered customer, the VAT code we should use is S (Standard).  The customer will claim the VAT back in their VAT return, and we pay the VAT portion to HMRC.

Correct

  • When we sell goods to a European based VAT-registered customer, the VAT code we should use is EGZ (European Goods Zero).  No VAT is charged.

Correct

  • If we export outside the EU, we should use the O code (Outside the Scope of VA
Normally I would say yes but the O code in Qb is not correct unless it reports the nett sales to box 6. QB 2014 was not correct.

The Unusual situation is more difficult and I wil reply later about this as I think it actually comes uner triangulation rules and I need t re read these.



View solution in original post

8 REPLIES 8
Highlighted
Level 4

Correct VAT Codes for European VAT-Registered Customers...confirmation of some common situations & advice on an unusual situation.

Lets do it one bit at a time, also please use manage vay so you can see the posting which helps explain it all.

  • Purchases:

  • When we purchase goods from a UK VAT-registered supplier, the VAT code that we should use is S (Standard VAT).  This is reclaimed from HMRC

Correct

  • When we purchase goods from a European VAT-registered supplier, the VAT code that we should use is EGZ (European Goods Zero rated).  No VAT is charged / reclaimed.
Correct in QB 2014, older versions used EGS

  • When we purchase goods from a non-European supplier (i.e. China, Thailand, etc.) the code we use is O (Outside the scope of VAT).
Correct for Purchases when entering the bill it is code O but remember that the Vat paid on import related the bill is code S

  • Sales:
  • When we supply goods to a UK based, VAT-registered customer, the VAT code we should use is S (Standard).  The customer will claim the VAT back in their VAT return, and we pay the VAT portion to HMRC.

Correct

  • When we sell goods to a European based VAT-registered customer, the VAT code we should use is EGZ (European Goods Zero).  No VAT is charged.

Correct

  • If we export outside the EU, we should use the O code (Outside the Scope of VA
Normally I would say yes but the O code in Qb is not correct unless it reports the nett sales to box 6. QB 2014 was not correct.

The Unusual situation is more difficult and I wil reply later about this as I think it actually comes uner triangulation rules and I need t re read these.



View solution in original post

Highlighted
Level 1

Correct VAT Codes for European VAT-Registered Customers...confirmation of some common situations & advice on an unusual situation.

Thank you, Graceman.  Thankfully, you have confirmed that I seem to be on the right track with the more common scenarios.  If you do have any information on the "Spanish situation", I would be grateful, as the current way I have done it, causes errors on my EC Sales & VAT returns.
Highlighted
Level 4

Correct VAT Codes for European VAT-Registered Customers...confirmation of some common situations & advice on an unusual situation.

Your Spanish situation falls into an unusual category and where QB  handles most common scenario's the code to handle this is ESZ

The Goods are in fact not an EC sale as they remain in the Uk so the Goods purchase using Standard vat rate and sale at cost also using standard vat rate is correct. You do not need to report in EC sales list.

Your service is zero rated and vat code ESZ cover this reporting the sale in box 6 alone. 

Highlighted
Level 4

Correct VAT Codes for European VAT-Registered Customers...confirmation of some common situations & advice on an unusual situation.

If I read your information correctly the Spanish Vat registered company has you sourcing & supplying in UK a gift that is never invoiced to the Uk recipient?

You just handle this for them in UK at cost & bill them your service.?

That scenario rules out triangulation.


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Level 1

Correct VAT Codes for European VAT-Registered Customers...confirmation of some common situations & advice on an unusual situation.

What VAT code should be used on the cloud based version ? ECG 0% or ECG 20% ?? The invoice is from Google ads

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Moderator

Correct VAT Codes for European VAT-Registered Customers...confirmation of some common situations & advice on an unusual situation.

Thanks for reaching out in the Intuit Community, patfreeman30,

 

In line with your concern, it would be best consulting your accountant to verify what specific VAT code to use. This is to ensure that you would be able to properly account VAT.

 

For additional information, I'm including some helpful articles that you can check on how different VAT codes work in QuickBooks Online:

If you have any other questions concerning your QuickBooks Online account, please don't hesitate to visit us again. Have a great day!

Highlighted
Level 2

Correct VAT Codes for European VAT-Registered Customers...confirmation of some common situations & advice on an unusual situation.

The correct VAT code for purchase of goods from EC countries can be either EGS or EGZ. It would appear that in your case, it should be mostly EGS, if not all, because your post hinted that your business might not deal with zero-rated goods (such as children clothing, food etc). This is per section 5.7.3 "Intra-EU Supplies of Goods: Acquisitions" of VAT Guide.

 

The correct VAT code for export outside UK and EU is Z for zero-rated, not O or No VAT, as per section 5.5 "Exported Goods" of VAT Guide.

 

With regard to imports from outside EU, the use of O or No VAT code is correct, however when VAT is paid upon import clearance at a UK port, you should receive a C79 Import VAT Certificate which would allow you to claim back the VAT. A VAT-only posting of bill or cheque is not possible, so a set of "contra entries" is recommended, consisting of a calculated net value that gives rise to the VAT paid and a negative net value with O or No VAT code. This should also add the correct purchase value in Box 7 of the VAT return as it should be.

 

Although the incorrect use of the above VAT codes would not result in the under or over payment of VAT, the input and output values of goods sold (export) and purchases (acquisitions from EU) are under-stated on the VAT returns.

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QuickBooks Team

Correct VAT Codes for European VAT-Registered Customers...confirmation of some common situations & advice on an unusual situation.

Hello, Thanks for reaching to the Community.

 

Please see link for Common VAT codes to use within QuickBooks. I hope this is of help.