07 April 2017
Value-added tax, or VAT as we all know it, can sometimes seem like a particularly confusing element of your small business finances – and nowhere more so than when you’re dealing with expenses and the sundry costs of running the business.
Something we get asked a lot is ‘Which VAT code should I use in Xero when entering expenses?’. Getting your head around how VAT works in Xero, and using the right codes from the start, will certainly reduce any VAT headaches in the long run.
With this in mind, here’s our quick overview of the main VAT codes and when you’ll need to use them.
In the course of running your business, you’ll buy a whole variety of different goods and services from your suppliers. And for the majority of these transactions you’ll be paying VAT as part of the overall cost on the supplier’s invoice.
Now, this is where things get a little more complicated…
With some purchases you make, you won’t pay any VAT at all – and these transactions need to be coded correctly in Xero so each quarter’s VAT return has all the right information about the costs you’ve incurred.
There are three main types of expenses where you don’t pay VAT – and you’ll need to understand these (and code your expenses accordingly) to complete your return correctly.
We hope this whistlestop tour of the different VAT codes for expenses has given you a better grasp of how to enter your expenses in Xero – there’s even more guidance in our VAT FAQ section.
Entering your VAT-able and non-VAT-able expenses against the right codes in Xero will make completing your quarterly return a whole lot easier. And, ultimately, keeping on top of your VAT, having the right receipts and claiming back the tax you’re due is a great way to improve the cash situation in your business.
If you want the lowdown on every element of VAT, take a look at the free VAT FAQs in our Help CentreGet your VAT answers