VAT is a consumption tax charged on goods and services at each stage of production and distribution. Businesses collect VAT on sales and reclaim VAT on purchases, remitting the net amount.
Value Added Tax is used in the UK (20% standard rate), Ireland (23%), UAE (5%), South Africa (15%) and many other countries worldwide. Like GST, VAT is a multi-stage tax where businesses act as collection agents. You charge VAT on your taxable sales (output VAT) and claim credit for VAT on your business purchases (input VAT). Each reporting period, you calculate the net amount and either pay the difference to the tax authority or receive a refund. VAT systems often have multiple rates: standard rate, reduced rates and zero rates. Some supplies are exempt from VAT entirely. The complexity of multi-rate VAT systems makes accurate bookkeeping essential - every transaction must be coded with the correct VAT rate. In the UK, Making Tax Digital (MTD) requires digital record-keeping and electronic submission of VAT returns. SortBooks handles multi-rate VAT automatically, learning which of your transaction types attract which rates and suggesting them consistently. It generates MTD-compliant VAT returns and maintains the digital records required by HMRC and other tax authorities.
SortBooks helps with the bookkeeping behind vat (value added tax) by connecting to your Xero account and using AI to suggest the right account for transactions sitting in catch-all accounts, learning from your own past coding. Instead of fixing vat (value added tax) by hand, you review each suggestion, approve it, and SortBooks updates Xero, GST code included. Then ask the AI CFO about your numbers, using live Xero data.
GST is a broad-based consumption tax applied to most goods and services. Businesses collect GST on sales and claim credits for GST paid on purchases, remitting the net amount to the tax authority.
Making Tax Digital is a UK government initiative requiring businesses to keep digital records and submit tax returns through HMRC-compatible software.
HMRC is the UK's tax authority responsible for collecting taxes, administering benefits, enforcing customs regulations and overseeing Making Tax Digital.
Tax compliance means meeting all your obligations to file tax returns, make payments and maintain records as required by your country's tax laws and tax authority.
An input tax credit is the GST/VAT you paid on business purchases that you can claim back from the tax authority. It offsets the GST/VAT you collected on sales.
Connect Xero, check the AI's suggestions and approve the changes. SortBooks updates Xero for you.