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How can I account for reverse charged services?

#1

There’s a discussion here about EC reverse charge services, and the fact that it’s not currently supported. But how do I manually handle this case? Are there instructions somewhere? Is there an easy way to handle it with a project tag for example?

EC Reverse Charges for services
#2

Hi @chmac

How you manage this is up to you. Project tags seem to work - I’m aware of a few users who use this method.

The only thing you would need to do is make an adjustment when it comes to your VAT return. @ian_roberts outlines this in his post, along with another method that he uses:

I hope this helps

#3

I have enabled the “VAT registered in another EU member state” on the Supplier details form

I have the payment to the supplier listed on the bank entry for £150

On the Purchase entry I have set the “Apply VAT reverse charge”

I have set “NO VAT” on the Purchase form and entered the gross amount

But I get VAT = 0 and VAT in red = 0
Gross Total = £150

This doesn’t look right to me as there is no VAT mentioned anywhere

Can you advise as I am trying to get my VAT return in today

thanks

#4

Hi @Howard

If there is no VAT, then “VAT = 0” would be correct.

However, with reverse charge you would generally put the VAT rate down as if you were invoicing yourself. There’s more on this here:

Although please note, I’m not an accountant, so if you are unsure, I would seek the advice of yours.

#5

There is VAT as the supplier says I need to pay it. I have read the IR info and just trying to find how best to do it in QF.

If I have the purchase form setup with vat at 20% and click the "Apply VAT Reverse Charge"
is get in red:

“The payment exceeds the balance. Any
excess will allocate a credit to this supplier”

#6

The “apply reverse charge” box is what you want. Enter the £150 the supplier charged you as the net amount on the QuickFile purchase, set the VAT rate to 20% and tick the reverse charge box. This will show £30 VAT as added on at the line level (making the line total £180) and then deducted again in the footer as “EC VAT exemption”, and the final invoice total will still be £150.

However, when it comes to the VAT return this will be treated as an acquisition of goods rather than a reverse charge transaction for services, so you need to make a couple of adjustments to your return using the drop down arrows. EC acquisitions put the VAT in box 2 and the net in box 9, whereas reverse charge transactions need the VAT in box 1 and the net in box 6, so you need to adjust:

  • +30 to box 1
  • -30 from box 2
  • +150 to box 6
  • -150 from box 9

This doesn’t affect the total amount of VAT so there’s no further adjustment required.

@QFMathew any chance you could add proper handling for reverse charge services as well as goods transactions so we don’t need to jump through these adjustment hoops?

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What To Do For Making Tax Digital?
#7

Hi @ian_roberts

We are likely to review this along with other parts of QuickFile in due course, although timescales isn’t something we can comment on at the moment. Undoubtedly there will be changes in light of Brexit and MTD so changes will be as a result of this. As always, we’ll keep you updated on the forums.

#8

I’ve just enabled MTD. I can do the usual box 2->1, and 9->6 adjustments, but apparently they won’t be sent to HMRC under the new MTD system.

How do I submit a valid VAT return to HMRC?

At this point I really wish I’d known this before signing up for MTD. It probably isn’t a requirement for our business, and at first blush, I can no longer submit VAT returns electronically.

#9

Hi @chmac,

The adjustments will be sent - it’s the notes which are not sent to HMRC. HMRC will only receive the final figures.

#10

@QFBeth I read this on the adjustment tab:

Adjustment narrative and amounts are not sent to HMRC electronically.

If you’re telling me that the numbers will in fact be sent, that is outstanding news because I usually didn’t add any text. It’s only the numbers I’m concerned with.

#11

Hi @chmac,

This is correct - HMRC don’t see the adjustment amounts they only see the final Figure.

So box 1 = ££
Box 2 = ££

etc.

Hope this makes sense

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#12

@QFBeth the new wording seems to have confused quite a few people, maybe you should consider clarifying it, something like “HMRC only receive the final adjusted amounts, not the adjustments or notes”.

#13

Thanks @ian_roberts,

I will suggest this :slight_smile:

#14

Wonderful, I can get back to submitting VAT returns. Thanks for the super fast response. QuickFile wins again! :heart_decoration:

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