The following information is for general guidance only and should not be taken as definitive VAT advice, since individual circumstances may vary. To determine the VAT treatment for your particular transactions please refer to HMRC guidance or seek tax advice from an accountant.
Introduction
If you determine that the place of supply (as explained in Purchases of services from abroad) of a purchase of services from an overseas supplier, is outside the UK, it is outside the scope of UK VAT.
To enter the purchase:
Using the PAY or PIN transaction, enter the purchase as usual, but with no VAT, and leave the Type of sale (for VAT purposes) setting as Normal.
In para 3.8 of HMRC VAT Notice 700/12, services outside the scope of VAT are not explicitly excluded from box 7 of the VAT return. On that basis, the assumption is that they are included in box 7. This will happen automatically when you run the VAT return, provided that the analysis account used for the transaction is set to being within the scope of VAT (even though this may seem counter-intuitive). This setting can be checked and changed as described in Transactions outside the scope of VAT.
Completing your VAT return
If you follow the steps above, the VAT return will automatically be populated with the required value in box. 7 as follows:
VAT return element |
Included in VAT return |
Amount included |
Net value of purchase |
Box 7 |
Net amt |
If you are on the cash accounting scheme
HMRC does not mention services outside the scope of VAT being excluded from the scheme in the HMRC VAT Cash Accounting Scheme Manual.
On that basis, the assumption is they are included in the scheme. However since VAT is not payable, this does not have any impact on VAT other than the timing of when the purchase is included in Box 7 of the VAT return. If you have the cash accounting setting on in VT Transaction+, the purchase will be included in Box 7. at date of payment, rather than the date of invoice (if different).
