How to apply the reverse charge mechanism in Quickfile?
I’ve purchased a service from the US - my web domain, which is zero rated. I understand from my reading I need to use the reverse charge mechanism for that transaction when I do my accounting and VAT return.
Could someone let me know how that works on Quickfile or perhaps share a link?
Thanks!
Hello @Orax
US is typically marked as Out of Scope for UK VAT
It would depend on the invoice, I would recommend speaking to your accountant for advice on this as we can only advise on QuickFile features, not accounting processes as the support team are not registered accountants.
You need to tick the “reverse charge on services” box under the additional VAT options at the bottom of the purchase, as shown by Steve - there’s no distinction between services purchased from the EU vs the US or anywhere else outside the UK, if the “place of supply” is the UK (which it most likely will be in this case, though it gets muddy if your business also operates overseas) then it is subject to UK VAT and needs to be reverse charged.
You enter the amount that the US company has charged you as the net and select the VAT rate that you would have been charged by a UK supplier selling you the same service (presumably 20%). This will add on that amount of VAT at the line level but then deduct it again at the bottom of the invoice, leaving the total equal to the net you were actually charged.
On the VAT return this will show the VAT in box 1 (sales) and box 4 (purchases), so the net result is zero.
Overseas supplies of services to UK businesses need to be treated as reverse charge for VAT, not out of scope. Supplies of goods from overseas (including the US) are different.
Just thought I would complement my initial post and the comments of @ian_roberts and @cbstephensaca with the government guidance on this subject for readers interested: Place of supply of services (VAT Notice 741A) - Reverse charge
Quoting the relevant bit here as well if ever the linked URL breaks in the future:
If you’re a UK recipient of services from a non-UK supplier the following rules apply to you.
The reverse charge applies where:
- the place of supply is the UK
- the supplier belongs outside the UK
- you belong in the UK
- the supply is not exempt (this includes exempt supplies subject to an option to tax)
- for supplies not within the general rule, you’re VAT registered in the UK
The reverse charge applies to almost all B2B supplies of services except exempt supplies. It does not apply to land on which the option to tax has been exercised (read section 7 for more details). In this circumstance the non-UK supplier must register and account for VAT in the UK.
Hi orax. I pay for a bit of software supplied by a us company. I pay for two actually. One has a eu vat number stated on the invoice the other doesn’t. Should they both be reverse charge then regardless of what’s on the invoice? I thought it would have been out of scope but happy to be corrected.
Hi @Spike, the situation you are describing is not something I have yet encountered in the operation of my own business so I would have unfortunately no practical insight to share on what would be appropriate for you to do with regard to the VAT treatment.
I can however comment on the fact that if the transactions that happened between the US company you mentioned and your business are considered to be a sale of service, then based on my understanding of the VAT notice 741A I have highlighted above it would make sense to me to apply the reverse charge mechanism. If however these transactions were to be considered as a sale of good, the reverse charge mechanism would not apply and a succinct research would point me towards looking further into this other governmental guidance on VAT on imports.
The complexity of your situation seems to me to reside in understanding whether these transactions are to be labelled as goods or as services. In the event you had for instance tasked the US company to build a software for your business, I would be inclined based on my current knowledge to consider this as a service. If you bought instead software licences for your business, things become a bit cloudy for me and from what I have read for a few others as well - see for instance this article on a case brought to the UK justice system about softwares - so I wouldn’t be able to comment further unfortunately.
Hopefully others reading this thread would have practical knowledge of how to deal with the situation you are facing.
Any supplies of services made by overseas companies, no matter where they’re based, should be accounted for under the reverse charge mechanism, unless they have a UK VAT number. If they have a UK VAT number (and you can check that it’s a valid UK number here Check a UK VAT number - GOV.UK) then they have registered for UK VAT and you can process it as if they were a UK supplier and reclaim the VAT.
If they do not, then they shouldn’t be charging you VAT and you apply the reverse charge. If they have charged EU VAT, because they mistakenly believe you are an individual, not a business, then you are unable to claim that VAT back, and need to reverse charge the full amount, including the EU VAT.
In this case, I would go back to the supplier and give them your VAT number, and ask them to charge you as a business.
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