The most important VAT rule for new registrants
The number one mistake to avoid as a VAT-registered company
New VAT registrants make the same handful of errors in their first few months. This article identifies the most important one to avoid.
The number one mistake: wrong VAT codes in Xero
Xero calculates your VAT return automatically from the codes applied to transactions. If a sale is coded as No VAT instead of 20% Tax on Revenue, the output VAT is omitted from Box 1. If a purchase is coded as No VAT instead of 20% Tax on Purchases, the input VAT is lost from Box 4. Systematic coding errors compound over a quarter and can create a significant discrepancy on the return.
The solution
Apply the 20% Tax on Revenue code to every standard-rated sale. Apply the 20% Tax on Purchases code to every standard-rated purchase where a valid supplier VAT invoice is held. If a transaction is zero-rated, exempt, or from an overseas supplier, contact us before coding it, as these require specific codes which we configure during setup.
💡 Good to know: We review all VAT codes before submitting each return. But identifying and explaining a coding error to us is always faster than us discovering one during review. Flag any uncertain transaction at the time of entry.
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