Taylor Scott
When it comes to VAT returns, Box 7 is designated for the total value of purchases and all other inputs excluding any VAT. This includes the net value of purchases made by the business, taxable or not, and any services purchased from overseas vendors. While there is some confusion regarding what constitutes an input, it is generally understood that bank charges and insurance payments are exempt from VAT and should be included in Box 7. This is further supported by completion notes which mention purchases and all other inputs...include zero-rated, exempt inputs, and EC acquisitions. However, it is worth noting that HMRC's guidance on what should or should not be included in Box 7 could be clearer, and there may be variations in advice given by different officers.
| Characteristics | Values |
|---|---|
| VAT return box 7 | Total purchases excluding VAT |
| What to include in box 7 | The net value of purchases made by the business (taxable and non-taxable), any services purchased from overseas vendors where the UK reverse charge mechanism is applied, purchases made under the margin schemes applicable to certain supplies of goods within the UK, the net value of any imported goods where the VAT amount has been included on Box 4 on the return |
| What not to include in box 7 | Expenses like salaries and taxes (PAYE and National Insurance contributions), motor vehicle license duty, MOT certificates |
| Bank charges | Should be included in box 7 |
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What You'll Learn
Bank charges are exempt from VAT
In the UK, services provided by banks and similar financial institutions are generally exempt from VAT. This includes charges for the acceptance of money on account, money transfer services, and the exchange of legal tender. Charges made by banks in connection with the operation of current, deposit, or savings accounts are also exempt from VAT. For example, charges for lack of funds to honour cheques or direct debit payments.
Electronic banking services are also exempt from VAT when provided as an addition or alternative to conventional banking services. This includes account management services. However, if a bank charges for a package of services, the VAT treatment can be less clear-cut. In these cases, HMRC advises that the VAT treatment is determined by the main service being provided. If the primary service is in connection with the handling of money, it is typically exempt from VAT.
It is important to note that while bank charges are exempt from VAT, they may still need to be included in tax returns. For example, in the UK, bank charges and interest are exempt from VAT but should be included in Box 7 of the VAT return form. This is because the completion notes on the back of the form mention "purchases and all other inputs...include zero-rated, exempt inputs, and EC acquisitions".
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Bank charges paid need to be on the VAT return
Services provided by banks and other financial institutions are generally exempt from VAT. Charges in connection with financial transactions, such as charges for accepting money, money transfers, exchanging legal tender, and operating accounts, are typically exempt. Additionally, charges for insufficient funds, electronic banking services, and interest on loans are also exempt from VAT.
Bank charges and interest are exempt from VAT under Group 2 and Group 5 of Schedule 9 to the VAT Act, respectively. As exempt inputs, they should be included in Box 7 of the VAT return. This is supported by guidance from HMRC, which states that exempt transactions should be included in Box 7.
However, it is important to note that when a single charge is made for multiple services, the VAT treatment can be more complex. In such cases, HMRC advises that the VAT treatment is determined by the primary service being provided. If the main service is related to handling money, it is typically exempt from VAT.
To ensure compliance and accurate reporting, it is recommended to seek professional VAT advice or refer to HMRC guidelines for specific scenarios involving bank charges and their VAT treatment. While bank charges paid do need to be included in the VAT return, their treatment may vary depending on the specific circumstances and the nature of the services provided by the bank.
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Total value of purchases excluding VAT
Bank charges and interest are exempt from VAT under Group 2 and Group 5 of Schedule 9 of the VAT Act, respectively. They are, therefore, exempt inputs of the business and should be included in box 7.
The total value of purchases excluding VAT refers to the net amount of goods or services bought without the added tax. This value is important for businesses to accurately track their expenses and financial statements.
To calculate the total value of purchases excluding VAT, one must subtract the VAT amount from the gross amount. The VAT amount can be calculated by multiplying the gross amount by the VAT rate. For example, if the VAT rate is 20%, one would multiply the gross amount by 0.2 to find the VAT amount. This VAT amount is then subtracted from the gross amount to find the total value of purchases excluding VAT.
Online VAT calculators are available to simplify this process. One can input the gross value and VAT rate into the calculator to obtain the net amount excluding VAT. This ensures accuracy and saves time in financial calculations.
It is worth noting that in some jurisdictions, it is mandatory to display the price of goods or services inclusive of VAT. In such cases, businesses must accurately convert VAT-inclusive transactions to VAT-exclusive amounts to track the true cost of their purchases and revenues generated exclusive of VAT. This conversion can be achieved using specific formulas or with the assistance of accounting software.
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Taxable purchases should be included in Box 7
When it comes to VAT returns, it is essential to understand the distinction between transactions that are VAT exempt, zero-rated, or outside the scope of VAT altogether. This distinction is crucial when determining what should be included in Box 7 of the VAT return form.
Box 7 of the VAT return form specifically pertains to the "total value of purchases and all other inputs excluding any VAT." In other words, it requires the total figure for purchases, excluding VAT, made during the specified period. This includes both taxable and non-taxable purchases, as well as any services purchased from overseas vendors where the UK's reverse charge mechanism is applicable.
Now, regarding the inclusion of bank charges in Box 7, it is important to note that bank charges are generally exempt from VAT under Group 2 and Group 5 of Schedule 9 of the VAT Act. As such, they are considered exempt inputs of a business and should indeed be included in Box 7. This is further supported by guidance from HMRC, which states that the net value of purchases, even those where VAT cannot be claimed back, should be included in Box 7.
Therefore, it is clear that taxable purchases, as well as certain exempt purchases like bank charges, should be included in Box 7 of the VAT return form. This ensures that all costs and expenses are accurately reflected, except for those specifically excluded by HMRC, such as salaries, taxes, and certain vehicle-related expenses.
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Net value of purchases in Box 7
The net value of purchases in Box 7 of a VAT return should include the total value of purchases and expenses but exclude any VAT. This includes purchases from non-VAT-registered businesses and exempt purchases. It is important to note that supplies from unregistered traders and anything outside the scope should be omitted from Box 7.
If you are using the Cash Accounting Scheme, you must base the figure you enter in Box 7 on the payments you have made, not the invoices you have issued or received. This means that you must account for the VAT on purchases from EU member states or imports separately and add that amount to your cash accounting figure in Box 7.
Additionally, if you trade in second-hand goods, works of art, antiques, or collectors' items, you may be eligible to use the margin scheme. Under this scheme, there are special rules for completing Box 7, and you must include the full purchase price of eligible goods bought during the period.
It is worth mentioning that the guidance on what to include in Box 7 can vary, and different sources may provide different answers. However, as it is a minor statistical box, there is usually less concern about the exact contents.
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Frequently asked questions
Box 7 is the section of a VAT return form where you enter the total value of purchases and all other inputs excluding any VAT.
All taxable purchases should be included in Box 7, net of VAT. This includes the net value of purchases made by the business, any services purchased from overseas vendors where the UK reverse charge mechanism applies, and purchases made under the margin schemes applicable to certain supplies of goods within the UK.
Yes, bank charges and interest are exempt from VAT and should be included in Box 7.
Expenses like salaries and taxes (PAYE and National Insurance contributions), motor vehicle license duty, and MOT certificates should not be included in Box 7. Out-of-scope items, or purchases made from unregistered businesses and private individuals, should also be excluded.
