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Guide: Changing the VAT Rate

The UK Government has announced that the rate of VAT applied on most tourism and hospitality-related activities will be temporarily cut from 15 July 2020 to 12 January 2021.  The rate of VAT changes from 20% to 5%.  We have put together this guide on how to apply the new rate of VAT.  

Calculation

To calculate the amount of VAT due when charging 5% you can use the following formulas.

Gross amount – gross amount divided by 21

Net amount – net amount divided by 20

Accounting Software

The UK currently has a 5% reduced rate of VAT for various goods and services.  As such, many accounting systems will already have an option to select 5% VAT.  For the more popular accounting systems, below we have detailed how to select 5% VAT or add it to your accounting system.  Should you use another accounting system or require assistance when making any changes please contact us.

 Use 5%Add 5%Default 5%
XeroSelect 5% (VAT on Income / VAT on Expenses) from the Tax Rate box when entering transactionsA 5% option is generated automatically by Xero.  However, should you not have a 5% option you can add it by selecting Accounting, Advanced, Tax Rates and clicking New Tax Rate.  Fill in the boxes on screen and select Save 
Sage 50 AccountsT1 is the standard tax code to use in Sage and calculates VAT at 20%.  Using T5 will calculate VAT at 5%Some users will be tempted to change the T1 tax code to 5% as this is the default.  This should be avoided as you will still require a 20% tax code as many of your suppliers will still be charging you 20% 
Sage Business CloudSelect the Lower Rate 5% option from the VAT Rate box when entering transactions  
IRIS KashflowSelect 5% from the VAT Rate box when entering transactionsA 5% option is generated automatically by Kashflow.  However, should you not have a 5% option you can add it by selecting Settings, VAT Settings, and under the VAT Rates section entered 5% in the Add Rate box and click the + symbolYou can change the default VAT rate to 5% by selecting Settings, VAT Settings, and under the VAT Rates section selecting 5% from the drop-down menu under Default VAT Rate
QuickBooks DesktopSelect Reduced (5%) from the VAT column when entering transactionsA 5% option is generated automatically by QuickBooks.  However, should you not have a 5% option you can add it by the top menu by selecting VAT, Manage VAT, Change VAT Setup, select Add A New VAT Rate, click Next through the screens adding the requested detailTo change the default VAT rate select from the top menu, VAT, Manage VAT, Assign VAT Codes, Bulk Changes and change the default VAT rate as needed

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