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How to record the sale of goods to the EU dated on or before 31st December 2020

If you sell goods to customers in the EU, under certain circumstances you can zero-rate those sales for UK VAT. Services directly related to those goods, such as delivery charges, are also counted as part of sales of goods to the EU.

Please note that the guidance in this article only applies to transactions dated 31st December 2020 or earlier. For transactions dated on or after 1st January 2021, please follow the guidance in this article.

Here's how to issue an invoice in FreeAgent for sales that meet those conditions.

1 Enable additional VAT options

Before you can tag invoices as EU, you need to enable these VAT options in FreeAgent. Select 'Settings' from the drop-down menu in the top-right corner and then select 'VAT Registration'.

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Select 'Yes' in the 'Do you need to use VAT rates other than standard UK ones?' section.

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Save your changes.

2 Make sure the VAT options for the contact is set 

Select the 'Edit Details' button for your contact in the EU.

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Make sure that contact's country is in the EU but outside the UK, that you have set the 'Charge VAT' option to 'Always' (because VAT is being charged, just at a rate of 0%), and that the VAT Registration Number box has been filled in. Having a valid VAT number for your customer is one condition HM Revenue look for when allowing sales of goods to the EU to be zero-rated.

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Save any changes you have made.

3 Create your invoice

You're now ready to create your sales invoice as normal.

As you do that, select the More Options arrow.

Tick the box saying 'EC Goods'.

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When you create the invoice, FreeAgent will then pick up that it's for a sale of goods, and services directly related to those goods (such as delivery services), to a customer in the EU.

FreeAgent assumes that whenever the 'EC Goods' box is ticked, HM Revenue's conditions for zero-rating the sale are fulfilled, so do make sure they are.

Add items and choose the 0% VAT rate

When you add items to the invoice, make sure you set the VAT rate as 0%.

VAT reporting - not on the Flat Rate Scheme

When you correctly create an invoice for the sale of EC goods, if you are not on the Flat Rate Scheme, FreeAgent will add the net amount of the invoice (or its corresponding receipt if you are cash accounting for VAT) to boxes 6 and 8 on your VAT return.

VAT reporting - on the Flat Rate Scheme

When you correctly create an invoice for the sale of EC goods, if you are on the Flat Rate Scheme, FreeAgent will add the net amount of the invoice (or its corresponding receipt if you are cash accounting for VAT) to boxes 6 and 8 on your VAT return, and work out flat rate VAT on that sale.

This is correct because the sale of goods to the EU is zero-rated for VAT - not outside the scope. The sale of services to the EU is outside the scope of VAT and is treated differently.

I'm selling both goods and services to a customer in the EU - and the services are not directly related to the goods.

In that case you'll need to create two invoices in FreeAgent, one for the goods and the other for the unrelated services.

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