There are a number of VAT codes within sage and sometimes this can cause confusion about when they should be used so we thought a quick guide was in order. These are the recommendations for the standard VAT codes within sage.
T0 This should be used with zero rated transactions, examples might be books, maps, magazines, newspapers, Gold, and most food.
T1 This is for standard rated transactions (20% at the time of posting) and will be used most of the time, for most VAT registered businesses.
T2 This should be used for exempt transactions.
This is not the same as the T0 code though, exempt transactions are different from Zero rated.
Basically if you sold zero rated supplies you would be adding vat to what you sold, its just that the VAT would be zero. If you sold exempt supplies then you wold not be adding VAT to the sale at all. I know what your thinking, surely however you say it you get to the same total? well that is true, but the main reason they are described differently is because when you sell exempt items you haven't made a taxable supply.
That's pretty important because if you only sell exempt items then you can't register for VAT and you cannot reclaim VAT on your costs. It also means that if you sell some things that are exempt from VAT you must consider the partial exemption calculations (it sounds scary but its really not that bad, although we really would recommend talking to your accountant about it.)
So with that revelation, what are some examples of exempt supplies:
Land, Insurance, Betting, Lottery ticket sales, works of art, Antiques,Charitable fundraising events, Parking spaces.
T4 This should be used when making sales to VAT registered customers in the EC. You must have the customer's VAT registration number entered on the customer record if you want to use the T4 tax code. If your customer is not VAT-registered, then you should use one of the standard UK VAT rates.
T5 This is for lower rate, or reduced rate items and it should be pretty rare. You might see it used on some energy supplies.
T7 This code is reserved for Zero rated purchases from suppliers in the EC.
T8 This should be used for standard-rated purchases from suppliers in the EC.
T9 This is for transactions not involving VAT (or outside the scope of VAT). This is the default VAT rate that sage uses for Journal entries, it does not appear on the VAT return.
Examples of T9 transactions are Wages, Dividends, VAT payment/receipt, Local authority rates, Road fund licence.
The above are for general guidance only, we always recommend seeking advice from an accounting professional regarding your specific circumstances.