The 'how the VAT system works' example shows the operation of the transaction based VAT system.

As this example only deals with a single transaction flow, it is possible to keep track of the amounts of VAT to be paid and reclaimed from HMRC. The University sits in the middle of such a chain, and will have 1000’s of transactions for which it is required to collect VAT details. The way in which the University is able to collect the necessary VAT information is by attributing a VAT code to each transaction. The VAT code determines how the QFIS accounting system calculates and collects VAT details, which can then be used to provide summary information in the VAT return. 

Each transaction entered on the QFIS system requires a VAT code to be attached. The applicable VAT code is influenced by the type of goods or services being supplied or purchased, the individual or organisation to whom they have been supplied or purchased and the location of the organisation. A number of flowcharts are provided to assist you with selecting the appropriate VAT code to use for a transaction.

Purchase coding - Goods 

Purchase coding - Services