Tax codes used by Xero, Sage and QuickBooks accounting softwares
We are finding an increase in the use of cloud accounting software and there are occasions when a business will make the transition from one software to another. I have been recently asked to review the various tax codes in use and do a comparison across the most common softwares with a view to providing a list to support both our team and or clients in this exercise. I understand how confusing it could be as I had to adapt from using Sage to Xero and QuickBooks and their VAT codes. Hopefully the table below will be of some help:
|Zero Rated Supplies.|
Items which need to be reported on the VAT return, such as children’s clothing, books, newspaper, travel, most foods, medicine, sales to countries outside the EU.
|T0||Zero Rated Expense|
Zero Rated Income
|Standard Rated Supplies.|
These tax codes are used for standard rated goods and services, such as repairs and maintenance, telephone, rent.
|T1 – 20%||20% (VAT on Expenses)|
20% (VAT on Income)
|20% S (in QuickBooks this is used for both sales and purchases)|
Items exempt from VAT so are not taxable, such as: insurance, finance and credit, fund raising, subscriptions to membership organisations, stamps.
|T2 – exempt transactions||Exempt expense|
|Reduced Rated Supplies.|
These are the reduced tax codes used for items such as: home energy and children’s car seats.
|T5 – 5%||5% (VAT on Income)|
5% (VAT on Expense)
|Outside the Scope of VAT.|
Transactions not involving VAT, like wages, bank and cash transfers, PAYE/NI contributions, dividends – these will not appear on the VAT return
|T9||No VAT||Outside the Scope of VAT|
These tax codes are used for Sales made to VAT registered customers in the EC. These could be goods or services.
If the customer is not VAT registered, then the applicable UK rate of VAT is charged.
|T22 – Sales of services to VAT registered customers in EC.|
T4 – Sale of goods to VAT registered customers in EC
|Zero rated EC Goods Income|
Zero rated EC Services
|ECG/ECS – 0% Intra EU B2B Supply of Goods/Services.|
These codes are used for purchases of goods from suppliers based in EC.
|T7 – Zero rated purchases of goods from suppliers in EC.|
T8 – Standard rated purchases of goods from suppliers in EC.
|EC acquisitions (20%) – used for goods purchased from suppliers in EC.|
EC acquisitions (Zero Rated) used for purchases made from suppliers in EC.
|ECG – 20% Intra EU B2B purchase of goods.|
|Reverse Charge expenses.|
These codes are used when you must account for VAT on services that you buy from businesses who are based outside the UK.
In B2B transactions, it is the customer who must account for any VAT due via the reverse charge mechanism.
|T24 – Standard rated purchases of services from supplier in EC.|
T23 – Zero rated or exempt purchases of services from suppliers in EC
|Reverse Charge Expense (20%)||RC – 20%|
An organisation needs to account for transactions with correct tax codes in order to ensure that their VAT return complies with the relevant HMRC rules. The above has been provided to help understand these rules and make it easier to use new software if you are familiar with the tax codes used in another.
If you would like more information on this or have any questions please contact your Barnes Roffe partner for further information.
Blog written by: Roxana SavuTalk to Barnes Roffe today