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What's the difference between 0% VAT, Exempt, and No VAT in QuickBooks Online?

Forum|Forum|3 years ago
September 28, 2022
5 replies
69 views

hi cant get my head around no vat / exempt /0% ??? if for example i brought books from a non vat registered place is that 0% vat or vat exempt ? any help greatly appriciated

QuickBooks Online

Best answer by Elizabeth P

The difference between these three VAT codes in QuickBooks Online comes down to whether VAT applies at all, and whether the transaction appears on your VAT return.

0% / Zero Rate (Z)
Used for goods and services that are taxable, but the VAT rate charged is 0%. or example, children's clothing, footwear, or leaflet printing. These transactions do appear on your VAT return: the net amount posts to Box 6 (sales) or Box 7 (purchases), with £0 VAT recorded in Box 1 or Box 4.

Exempt
Used for goods and services that fall under special categories where VAT legally cannot be charged at all. For example, insurance, medical treatments, or education. Like Zero Rate, the net amount still posts to Box 6 or Box 7 on your VAT return, but no VAT amount is ever calculated, because these items sit outside the VAT system entirely.

No VAT
Used when a transaction is completely out of scope for VAT.Most commonly because you're not VAT-registered, the purchase isn't part of your VAT-registered business, or it involves goods/services outside the UK or EU. Unlike the two codes above, No VAT does not post to your VAT return at all — not even to Box 6 or 7.

Which one applies to your situation?
QuickBooks Support and Community can't tell you which code to use for a specific transaction. That depends on the nature of the goods/services and your VAT registration status, which is accounting advice specific to your business. For example, whether a purchase from a non-VAT-registered supplier should be Zero Rated, Exempt, or excluded via No VAT depends on the specifics of what was purchased. It's worth confirming with your accountant or checking HMRC's guidance on VAT rates if you're unsure.

Full breakdown of all VAT codes: Understanding VAT codes in QuickBook

A

Ashleigh1

Level 14

Hello Danzo1,

Welcome to the Community page,

We are unable to tell you which VAT code to use, you would need to seek advice from an accountant who will be able to help you with this. If you have a look at this article, it has more information on what each VAT code means for you.

paul72

Level 6

Hi @Danzo1

No VAT - will not post to VAT return, so only use for items that need to be kept off VAT100.

(I tend to use only on payroll cheques, adjusting journals, drawings, etc)

Z=0% & Exempt are pretty much identical in the effect they have on the VAT return.

(both post amounts to box 6/7 & £zero VAT)

The difference is technical & for most people not worth worrying about.

I tend to use Z=0% for everything bought/sold in the UK whether it is technically exempt or zero-rated but use Exempt code for overseas - just as a way of separating things on reports.

For your books, I'd use Z=0%.

Whether that's technically correct is neither here-nor-there. For all practical purposes it works & gives the correct result - purchase posted to box 7 & £zero VAT to box 4.

Hope that helps.

B

Bernice Cole

Hi there!

I use the codes as follows

1) No VAT - where the company isn't registered for VAT so VAT isn't charged on anything even it it was a VATable item

2) Z=0% - Zero rated VAT items so items where there is no VAT charge applied such as children's clothes etc

3) Exempt - we have grant projects where we cannot claim the VAT back from HMRC so even if VAT is charged on these items, I have to mark it as exempt.

Hope this helps.

paul72

Level 6

@Bernice Cole wrote:
Hi there!

1) No VAT - where the company isn't registered for VAT so VAT isn't charged on anything even it it was a VATable item

Be careful with this - as above, NoVAT does not post at all to the VAT return (not even to box 6 & 7).

Even though, technically, something might be outside the scope of VAT it's better to be on the return than not.

Certainly, goods bought from non-registered suppliers should be shown on the VAT return.

Elizabeth P

Answer

Community Manager

The difference between these three VAT codes in QuickBooks Online comes down to whether VAT applies at all, and whether the transaction appears on your VAT return.

0% / Zero Rate (Z)
Used for goods and services that are taxable, but the VAT rate charged is 0%. or example, children's clothing, footwear, or leaflet printing. These transactions do appear on your VAT return: the net amount posts to Box 6 (sales) or Box 7 (purchases), with £0 VAT recorded in Box 1 or Box 4.

Exempt
Used for goods and services that fall under special categories where VAT legally cannot be charged at all. For example, insurance, medical treatments, or education. Like Zero Rate, the net amount still posts to Box 6 or Box 7 on your VAT return, but no VAT amount is ever calculated, because these items sit outside the VAT system entirely.

No VAT
Used when a transaction is completely out of scope for VAT.Most commonly because you're not VAT-registered, the purchase isn't part of your VAT-registered business, or it involves goods/services outside the UK or EU. Unlike the two codes above, No VAT does not post to your VAT return at all — not even to Box 6 or 7.

Which one applies to your situation?
QuickBooks Support and Community can't tell you which code to use for a specific transaction. That depends on the nature of the goods/services and your VAT registration status, which is accounting advice specific to your business. For example, whether a purchase from a non-VAT-registered supplier should be Zero Rated, Exempt, or excluded via No VAT depends on the specifics of what was purchased. It's worth confirming with your accountant or checking HMRC's guidance on VAT rates if you're unsure.

Full breakdown of all VAT codes: Understanding VAT codes in QuickBook

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