Record the sale of goods to businesses based outside the UK

This article explains how UK VAT-registered businesses should record the sale of goods to businesses based anywhere outside the UK from 1st January 2021.

Please note that it’s important to follow HMRC’s guidance when recording the sale of goods to businesses based outside the UK in order to prepare your VAT returns correctly. If you’re unsure how to record these, please speak to your accountant.

For information on how to record the sale of services to businesses based outside the UK from 1st January 2021, please see this article.

Enabling VAT rates for trade outside the UK

Before you can record sales transactions with overseas businesses in FreeAgent, you will need to enable VAT rates for trade outside of the UK.

To do this, select ‘Settings’ from the drop-down menu at the top-right of the screen and select ‘VAT Registration’.

On the ‘UK VAT Registration’ page, scroll down to the ‘VAT settings’ section and select ‘Yes’ in response to the question ‘Do you need to use VAT rates other than standard UK ones?’. Select ‘Save Changes’ at the bottom of the screen to complete the process.

Recording the sale of goods to businesses outside the UK

If you supply goods to businesses outside the UK, record the sale by either explaining a bank transaction as a ‘Sale’ or creating an invoice. Please note that doing both will result in your income being double-counted.

Explaining a bank transaction

If you’re explaining a bank transaction instead of creating an invoice, 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 relates to the sale and select ‘More Options’.

Businesses based in England, Scotland or Wales

If your business is based in England, Scotland or Wales, select ‘Sales’ from the ‘Type’ drop-down menu. If your business is based in Northern Ireland, please see the section below.

Select ‘UK VAT Rates’ from the ‘VAT Options’ and select the appropriate rate of VAT from the ‘Including [X] VAT’ drop-down menu. Check with HMRC whether you can charge VAT at 0% for the goods you’re selling. They provide guidance for checking the conditions and time limits for zero rating. Please note that you won’t see these options if the bank transaction is dated before 1st January 2021.

Select ‘Create New Explanation’ at the bottom of the screen to complete the process.

Businesses based in Northern Ireland

If your business is based in Northern Ireland and you’re supplying goods to any country outside the UK, select ‘Sales’ from the ‘Type’ drop-down menu.

Select ‘EC Goods’ from the ‘VAT Options’ list if your customer is in the EU, otherwise select ‘UK VAT Rates’. Then, select the appropriate rate of VAT from the ‘VAT’ drop-down menu. If you’re unsure which rate of VAT to choose, please ask your accountant.

Select ‘Create New Explanation’ at the bottom of the screen to complete the process.

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

Creating an invoice

If you’re creating an invoice instead of explaining a bank transaction, navigate to the ‘Work’ tab at the top of the screen and select ‘Invoicing’ from the drop-down menu.

Select ‘Add New Invoice’.

Complete the relevant details for the invoice and select 'More Options' to expand the section and choose the relevant VAT option. If your business is based in England, Scotland or Wales, and you’re supplying goods to any country outside the UK, select ‘UK VAT Rates’.

If your business is based in Northern Ireland and you’re supplying goods to a customer based in an EU country, select ‘EC Goods’, otherwise select ‘UK VAT Rates'. Please note that you won’t see these options if the invoice is dated before 1st January 2021.

Once you’ve selected the relevant option, select ‘Create New Invoice’ to complete the process. For more information on how to create an invoice, please see this article.

When adding line items to your invoice, make sure to select the appropriate rate of VAT if your business is based in England, Scotland or Wales. Check with HMRC whether you can charge VAT at 0% for the goods you’re selling. They provide guidance for checking the conditions and time limits for zero rating. If you’re unsure which rate of VAT to select, please ask your accountant.

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

The effect on your VAT return

Not using the VAT Flat Rate Scheme

If you're not using the VAT Flat Rate Scheme, FreeAgent will add the net amount of the bank transaction or invoice, depending on how you recorded the sale, to box 6 of your VAT return.

For companies based in Northern Ireland, the net amount will be added to boxes 6 and 8 of your VAT return.

Using the VAT Flat Rate Scheme

If you're using the VAT Flat Rate Scheme, FreeAgent will add the net amount of the bank transaction or invoice, depending on how you recorded the sale, to box 6 of your VAT return. It will also calculate the flat rate VAT on that sale and add it to box 1. This is because the sale of goods outside the UK is zero-rated for VAT and therefore would be part of your VAT flat rate turnover.

For companies based in Northern Ireland, FreeAgent will add the flat rate VAT on the sale to box 1, and it will also add the net amount of the transaction to boxes 6 and 8 of your VAT return.