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EU VAT

Question asked by Joseph Keppeln 1 year ago

When we have receipts of expenses such as rental cars, petrol, travel, food etc in the EU these services and goods apply their own VAT. We usualy toggle the option to VAT as Exclude from VAT return but the following messages appear sometimes:

The selected VAT treatment is invalid. Please check the VAT rates on your line items or please check your VAT scheme is set up correctly.

When this happens we add usually change the VAT option to 0%.

Is this the correct way to proceed or should another option be used to toggle an EU VAT rate?

9 Replies

Hi Joseph

I'm afraid that each country has it's own rules for evidence and VAT sums reclaimable. Here is a link to HMRC's site, you should be able to do the reclaim via your .GOV login:

https://www.gov.uk/guidance/vat-refunds-for-uk-businesses-buying-from-other-eu-countries

With regard to your UK books (and HMRC) it's best to process the expenses as described above (ie treat the VAT inclusive price as a UK expense with UK supplier treatment and 0% VAT) then investigate whether and how to make the reclaim.

If X weeks/months later you receive a refund of the foreign VAT on some of the expenses, you explain it in the bank account using the "Refund" tab (rather than the Transaction tab) again using a UK supplier treatment but Outside the scope of VAT (not 0%), putting the refund to the appropriate expense account code, eg Travel.

Hope that makes sense - good luck, none of my clients have ever bothered to reclaim EU VAT but if it's a lot of money it's worth a try.

Hi Joseph,

These transactions should be included on your EC Sales list and submitted alongside your VAT return.

This feature is required to be toggled on in ClearBooks. Head to Settings > Configure system > Toggle Features > VAT & Bank import tool, then enable the "Reverse charge & EC rates" option.

This is will add an additional field when creating bills/invoices for VAT treatment. This additional field will allow you to determine the origin of the good or service i.e. Good/Service to/from a UK Customer/Supplier, Good/Service to/from an EU Customer/Supplier etc. The linked guide outlines this is further detail - https://clearbooks.freshdesk.com/support/solutions/articles/33000203284-how-to-generate-an-ec-sales-list

I have also included a link to Gov.uk as reference material to the process above - https://www.gov.uk/guidance/vat-how-to-report-your-eu-sales

If this raises further questions do let me know?

Hi Theolonious,

Yes, that is the way we proceed and we generate the EC sales list and reverse charge. However, once this is selected you still have to choose the VAT rate as either 0 or exclude and wanted to know which of the two is the correct field to enter in this case?

Would be good if once you select the option as Goods or Service from EU the VAT rate field was also correctly selected. Could even go further and have the system check against the EU VIES the VAT number entered from the corresponding country to confirm if it is correct.

Hi Joseph,

Generally, we would suggest using 0% for the VAT rate.

That is a great idea. I will raise this with our development team to be reviewed. Any further advancements will be announced on our community news board.

Sorry if I've got the wrong end of the stick here but if it involves expenses incurred overseas how does that involve the EC Sales list?

Ordinarily, if you buy in services from the EU and supply your VAT number, no EU VAT is charged and, picking the correct treatment and 0% VAT, CB will create the necessary entries in your VAT return, effectively entering a notional 20% UK VAT to both boxes 1 & 4. This is the reverse charge process.

Similarly, if you buy in goods from the EU and supply your VAT number, no VAT is charged and, again, using the appropriate treatment and 0% VAT, CB will enter 20% VAT in boxes 2 & 4 (if you are standard rather than Flat rate VAT).

If you go abroad and spend money buying the goods and services you will be charged the local VAT but this has no impact on your VAT return you treat the total cost as a UK purchase with 0% VAT to get the cost into box 7. If you want the EU VAT back you have to apply to the country's VAT authorities.

As I say, I may have mis understood the question, but I'm still confused by the ECSL reference.

Hi Paul,

Thanks for your correction in terminology.

Dear Paul,

That is exactly correct I was referring to expenses and not sales. Regarding sales, I was clear on how to proceed but regarding expenses, I was not certain if the correct procedure was for a 0 VAT or exclude. As you have very well written

"If you go abroad and spend money buying the goods and services you will be charged the local VAT but this has no impact on your VAT return you treat the total cost as a UK purchase with 0% VAT to get the cost into box 7. If you want the EU VAT back you have to apply to the country's VAT authorities."

However, in the case, you were to claim these back because they become a large amount (ongoing large expense by the commercial team etc.) would how they have been accounted for in Clearbooks and presented to HRMC matter? Or does each country only care about seeing the physical invoice and not how it has been accounted for in Clearbooks be it 0 or to exclude?

Hi Joseph

I'm afraid that each country has it's own rules for evidence and VAT sums reclaimable. Here is a link to HMRC's site, you should be able to do the reclaim via your .GOV login:

https://www.gov.uk/guidance/vat-refunds-for-uk-businesses-buying-from-other-eu-countries

With regard to your UK books (and HMRC) it's best to process the expenses as described above (ie treat the VAT inclusive price as a UK expense with UK supplier treatment and 0% VAT) then investigate whether and how to make the reclaim.

If X weeks/months later you receive a refund of the foreign VAT on some of the expenses, you explain it in the bank account using the "Refund" tab (rather than the Transaction tab) again using a UK supplier treatment but Outside the scope of VAT (not 0%), putting the refund to the appropriate expense account code, eg Travel.

Hope that makes sense - good luck, none of my clients have ever bothered to reclaim EU VAT but if it's a lot of money it's worth a try.

Correction the refund IS 0% VAT not outside the scope

Many thanks Paul and Theolonious,

Very clear and detailed explanation to both the HRMC and the best way to input the results in Clearbooks.

Have a great day.

Joseph

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