How to apply the temporary VAT rate to sales

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

For information on applying the temporary VAT rate to purchases, please see this article.

Before you start

Before applying the temporary VAT rate to your invoices and bank transactions by following the steps below, please review the government guidance.

Please note that the temporary VAT rate of 12.5% ended on 31st March 2022, so you won't be able to choose it in FreeAgent for transactions dated 1st April 2022 or later. This includes credit notes, so if you need to create a credit note for an invoice dated on or before 31st March 2022, you’ll also need to make sure the credit note is dated on or before 31st March 2022, and create the credit note from scratch rather than creating it from the invoice.

If you're not sure whether to apply the rate to a historical transaction, please check with your accountant.

Applying the temporary VAT rate to individual sales

Invoices

To apply the temporary VAT rate to invoices, create a new invoice and adjust the VAT rate for each line item you create by selecting ‘Reduced (12.5%)’ from the 'VAT' drop-down menu and selecting ‘Create and Finish’.

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

Please note that if you create an invoice using the temporary 12.5% VAT rate and need to edit the invoice to change the date to 1st April 2022 or later, you’ll need to change the VAT rate to the appropriate rate or amount as the temporary 12.5% VAT rate will no longer be available.

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

Select ‘Explain Transaction’ to complete the process.

If you have more than one sales transaction that you need to apply the temporary rate of VAT to, tick the checkboxes to the left of the relevant transactions and select ‘Sales’ 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 ‘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.