• Registered: 02/27/2013
  • Posts: 16

Topic: Dealing with VAT when purchasing VATable item from non-VAT regd. comp

I'm not sure how to handle this....

We are using FA to manage the accounting of a small crafts business. The business is VAT registered and so has to pay VAT on all items sold that are VATable. One or two of our suppliers are not VAT registered - we understand what we have to charge VAT on and pay VAT on, but I can't seem to setup the system to give me the information I want. Let us say I have sold an item at £120 inc VAT that I bought for £60 from a non-vat reg'd company. I know I have to pay the taxman £20 (20% of £100) and show Output and Output Tax as £100 and £20 respectively but I also need to show that Input and Input Tax as £60 and £0.

Does anyone know how to do this?

  • Registered: 02/27/2013
  • Posts: 16

Re: Dealing with VAT when purchasing VATable item from non-VAT regd. comp

Actually, looking at this further, the goods supplied are out of the scope for VAT, so should not appear on the return at all and I think I have fixed my own problem. Doing some testing, it appears I have to do 2 things:

  • Setup 4 tax types (20%, 5%, 0% and exempt) The key item I had missed was the difference between 0% tax (which is included in tax returns) and tax-exempt (not included in tax returns) - obvious when you think of it

  • Buy items from tax-exempt companies as exempt items and then "manufacture" them into items for sale at the appropriate tax rate. That way, the purchase item is treated correctly, the output tax is also treated correctly and as far as I can see, the audit trail is correct too.

  • Registered: 02/27/2013
  • Posts: 16

Re: Dealing with VAT when purchasing VATable item from non-VAT regd. comp

arad85 wrote:

Actually, looking at this further, the goods supplied are out of the scope for VAT, so should not appear on the return at all...

Or even easier... Set up a second tax group which has no taxes included and set the supplier as belonging to this tax group (also create them with Tax Included Prices marked although this is only a cosmetic change). Once done, the purchase of any item from the supplier doesn't have any tax added/deducted and once in stock, the item is subject to the usual tax rules on sale. All the figures seem to work nicely so...