How to apply the temporary VAT rate to purchases

This article explains how to apply the temporary VAT rate of 12.5% to purchases. You will need to follow this process when recording qualifying purchases from the hospitality and tourism industries between 1st October 2021 and 31st March 2022.

For information on how to apply the temporary VAT rate to sales, please see this article.

Before you get started

Before applying the temporary VAT rate to bills, out-of-pocket expenses or bank transactions by following the steps below, please review the VAT receipt you received from your supplier to check that the temporary rate was applied to the purchase in question.

Applying the temporary VAT rate to purchases

Bills

To apply the temporary rate of 12.5% VAT to purchases that you record as bills in FreeAgent, create the bill, enter the purchase details and select ‘12.5%’ from the ‘VAT’ drop-down menu.

A record of the bill being created will appear in your Audit Trail report.

Out-of-pocket expenses

To apply the temporary rate of 12.5% VAT to purchases that you record as out-of-pocket expenses in FreeAgent, create the expense, enter the purchase details and select ‘12.5%’ from the ‘VAT’ drop-down menu.

A record of the out-of-pocket expense being created will appear in your Audit Trail report.

Bank transactions

To apply the temporary rate of 12.5% VAT to a bank transaction, navigate to the ‘Banking’ tab at the top of the screen and select 'Bank Accounts' from the drop down menu.

Choose the relevant bank account from the list.

Select the transaction that you’d like to apply the temporary rate of 12.5% VAT to.

Select ‘Payment’ from the ‘Type’ drop-down menu and select ‘12.5%’ from the ‘Including [X] VAT’ drop-down menu.

Select ‘Accommodation and Meals’ or any other relevant custom category from the ‘Category’ drop-down menu.

Select ‘Explain Transaction’ to complete the process.

If you have more than one purchase transaction that you need to apply the temporary rate of VAT to, tick the checkboxes to the left of the relevant transactions and select ‘Payment’ from the ‘Type’ drop-down menu in the panel on the right-hand side.

Select ‘12.5%’ from the ‘Including [X] VAT’ drop-down menu and select the relevant category from the ‘Category’ drop-down menu. Then, select ‘Explain [X] transactions’ to explain all the selected transactions in the same way.

For more information on explaining multiple transactions at once, please see this article.

A record of the bank transaction(s) being explained will appear in your Audit Trail report.