VAT return

Hi Andrew,

Following our conversation a moment ago, I have now spoken with a colleague and have found that the issues you are having with your VAT return are in fact correct. This is actually an HMRC requirement.

The system is applying the reverse charge rule to your bills. If you select a VAT treatment as Services from EU Supplier the bill will be displayed in boxes 1 and 4 with the net VAT result between the two as 0 in box 5. The reverse charge rule will also be applied to bills with the VAT treatment as Goods from EU Supplier, however the bill will appear in boxes 2 and 4.

http://www.hmrc.gov.uk/vat/managing/international/imports/importing.htm#3

Let me know if I can be of further assistance, if indeed this was helpful, or if this raises any other questions.

All the best, Chris

the link deals with reverse charging amongst other things.

When I purchase a cup of coffee, for example, in South Africa no VAT is charged and it is I think a service delivered in South Africa (and not goods). The purchase has to be shown in box 7 but should not be processed as a reverse charge as a sale and purchase as there is no accounting for VAT.

With Sales, when recorded as outside the scope of UK and EU VAT and the rate set to zero the VAT return appears to be completed correctly. With purchases if you do this you get reverse charging.

If you set to out of scope but at 0% the system records the VAT as UK treatment at 0% - which kind of gives the right answer, but not quite and is wrong in the case of a purchase in the EU (say a hotel bill on which you do not wish to reclaim the VAT and you have not been given a zero rated invoice).

Hi Andrew,

Yes, that is correct. The reverse charge is applied in this instance too. They apply to both goods and services. Reverse charges are listed in both the sales and the purchases as the values then cancel one another out and balance. I can check this with our accountant advisor, if you wish, but he is not going to be in the office until next week.

Thanks

Chris

Hi Andrew

With regard to reverse charge on services, up until very recently, most HMRC reference material referred to reverse charge applying to practically all B2B services from "overseas" or from suppliers "outside the UK" with no reference to whether the supplier was inside or outside the EU.

Most guides and some notices have now moved onto the new GOV UK platform and many of these details are now missing or have changed. I will take another look at this but, to show you what I mean, have a look at the Place of Supply notice 741A and it's reverse charge section 18, note in particular the wording in Sections 18.1 & 18.10 and the example 18.10.1:

https://www.gov.uk/government/publications/vat-notice-741a-place-of-supply-of-services/vat-notice-741a-place-of-supply-of-services#reverse-charge

Just so we are clear, this will not be the case if overseas suppliers make zero rated type supplies but, in the majority of cases, my reading is that general B2B services into the UK will follow the RC formality.

As I say though I'll double check.

Cheers Paul

Chris

Strictly Reverse Charge procedures (boxes 1 & 4) only apply to a few types of goods (generally mobile phones & computer chips) the Box 2 & 4 purchase of goods from EU suppliers is not, strictly, reverse charge

Cheers Paul

Thanks for your help on this, Paul. It's much appreciated.

Cheers

Chris

Hi

I have spoken to the VAT office and they are clear that no receipts for items like hotel bills, whether in Europe or outside Europe, should be subject to reverse charging, but they must be reported in box 7 (purchases).

Items like an electronic sale are subject to reverse charging because they are being consumed in the UK (e.g. microsoft 365)

This is really causing a major problem for me.

Hi Andrew

I'm sorry but from your question I had not realised you were talking about actual purchases in another country.

In such cases you are absolutely right they are not "reverse charge" items because the place of supply is overseas not the UK and so,for speed, I have always just recorded them as UK purchases with 0% VAT to get them into box 7.

By the way there has always been debate (even within HMRC) over what is left in & out of box 7.

As it happens "VAT treatments" will be looked at shortly as the new BTE supply rules take hold (BTE supplies to non-business "Consumers" in the EU) as these will be expanded eventually to apply to all goods & services provided to non-businesses in the EU.

The zero % work around is what I have done, after lots of rework...the only thing is that recording us UK purchases is a bit odd. I think the system should more properly have Outside EU and probably a clear option to reverse charge or not (same for EU purchases).

The VAT help people were clear that you had to be very careful about what goes through the reverse charge process.

Hi Andrew

I'm afraid that the complexities of the UK VAT system mean that if you wanted a fool-proof system for every eventuality you'd probably have to have a dozen VAT treatments, especially if you wanted to cater for sales to businesses and non-businesses, services & goods, land deals or event entry services etc etc, plus you'd have to make sure that a selection of them worked differently under Flat Rate VAT (which they currently do).

With regard to the correct VAT treatment of reverse charge transactions, yes, I agree with HMRC however, in the real world, many users haven't a clue, and at least two other major cloud accounting providers only got this right a few months back after years of creating incorrect EC VAT entries.

With all accounting software I've ever used, it will be designed to handle perhaps 80% - 90% of what it's typical users needs and will have to assume that the user will know the details of their own tax affairs to be able to use a work around if necessary. So, for example, all HMRC are interested in is an entry in box 7, they don't care how you got to it.

However, having said all that, Clear Books (and the other software companies) should provide users with a list or table of typical VAT transactions using the codes & treatments they provide and the treatments they can't handle or workarounds that might be needed.

As so many thousands use CB without any VAT problems it is only with people like you highlighting these issues that changes and guides can be put in place.

Hi Paul

Can I also confirm that if you have a hotel bill for accommodation in Europe that includes VAT that you cannot realistically claim back that you should not use reverse charging but apply the same fix for non EU payments, enter the gross amount and put 0% and treat as UK VAT - so it is not reverse charged but does appear in purchases?

..and the same for a zero rated supply like a Taxi fare?

Thanks

Andrew