We are VAT registered, on the standard scheme and use Square for payments on our website & chip and pin transactions. Square deduct fees at the time of the transaction. I am able to request a monthly invoice detailing our fees. This invoice is generated in Dublin. Am I correct in thinking that I will need to reverse charge this invoice for VAT purposes?
Do I also reverse charge the monthly Paypal fees invoice? Having done a lot of reading on this subject, I’ve been unable to find a consistent answer
Final query, am I correct in my understanding that any selling platform which our company uses (regardless on location) which charges commission on sales (Ebay/Amazon etc) is classed as a “service” and fee invoices need to be reversed charged for VAT purposes?
I don’t think there is a consistent answer - I’ve used Payleven (now SumUp) for card present payments in the past and their invoices said that they’re VAT exempt as “bank charges”, but I’ve used Stripe for card not present and their invoices say customer must account for their own vat using reverse charge.
Edit: ah, on further inspection, SumUp are a UK VAT registered company which might explain the difference - SumUp don’t charge VAT because they think they don’t have to under UK law, Stripe would have to charge VAT under Irish law but don’t when selling to a VAT-registered non-Irish company because of the reverse charge procedure. In that case you probably do need to reverse charge the Square ones as those list an Irish VAT number as the supplier. For PayPal what exactly does it say on their fee invoice? Do they give a “GB” or foreign VAT number?
If they (i.e. the legal entity that is invoicing you) are based in the UK then it’s a normal UK sale - if any VAT is due then they’ll have listed it on the invoice, you pay it to them and then reclaim it on your VAT return in the usual way. If they’re based elsewhere then you’ll probably have to RC. I believe Ebay are UK-based for VAT purposes but Amazon aren’t.
(Usual disclaimer - I’m not an accountant, this is just based on my experience from my own business)
The VAT treatment depends on where the supplier is based and where the supply takes place. If the provider is EU based, and is supplying to a UK business (B2B) then they should not add VAT to their invoices and you should account for the VAT using the reverse charge.
However, the supplier will not always be aware that you are a business and/or that you are VAT registered. If you supply them with your VAT number, then they should take off the VAT and you would account for it under the reverse charge rules.
If the supplier is UK based (e.g. has a UK VAT number), then the invoice is treated in the usual way).
A service is basically anything which is not goods. There are quite complicated rules for the supply of services as the VAT treatment usually depends on where the supply takes place. The general rule for B2B is that the supply takes place where the customer belongs, in this case the UK. The reverse charge applies where the supplier is outside the UK, the customer is in the UK and is a business.
See here for more details https://www.gov.uk/guidance/vat-imports-acquisitions-and-purchases-from-abroad#services-received-from-overseas-suppliers
The supplier must be aware that you are a UK business in order to apply the reverse charge and they would usually need your VAT number to confirm this.
Some suppliers will retrospectively correct invoices, others will only correct them going forward. Any VAT inadvertently charged by overseas suppliers can not then be reclaimed.
It’s also worth noting that if you do need to record a reverse charge purchase of services in QuickFile then it’s not straightforward - the tick box labelled “apply reverse charge” is misleading as it actually applies the rules for EU acquisitions of goods, not the reverse charge rules that apply to services. There’s a number of other posts on here that you should be able to find with search that clarify the options - it’s not too bad if you’re on standard accrual accounting for VAT but it’s more of a pain if you’re on cash accounting.
My understanding is yes, you do, but like I say I’m not an accountant.
When I say reverse charging is “more of a pain”, the issue is that the goods acquisition rules that QuickFile uses when you tick the “apply reverse charge” box (put the VAT in box 2 and the net in box 9 of your return) specify that those transactions must be recorded on an accruals basis in all cases, regardless of whether you use accrual or cash accounting for your normal sales and purchases. But as far as I can tell from the information I’ve found online this doesn’t apply to the reverse charge rules (VAT in box 1, net in box 6) - reverse charge transactions are accounted for in the same way as your other sales and purchases, so on a cash basis if you use cash accounting.
I personally use accrual accounting anyway so when I have a reverse charge transaction to account for I do it by ticking the so-called “reverse charge” box and then manually adjusting my VAT return to subtract from boxes 2 and 9 and add to 1 and 6; this is fine for me as everything is still correct on accruals basis. But if you do that when you’re on cash accounting it’s not technically correct in cases where you were invoiced for the service in one quarter but didn’t pay for it until the next quarter (under cash accounting it should be dealt with in the quarter when you paid rather than the quarter when you were invoiced).
I’ve worked out an alternative way to deal with the reverse charge which works whichever accounting scheme you use, but I haven’t tried applying that myself since as luck would have it I’ve not actually had to reverse charge anything since then (the only thing I’ve ever had to RC is Stripe fees and I closed down my online shop a few months ago).
Do they invoice you from a US business address without VAT? If so, then yes, you would need to apply the reverse charge.
Some online businesses like Dropbox and Google, while US corporations, have their UK base in Ireland, so should invoice you under the EU reverse charge scheme anyway which should be noted on the invoice (or they’ll charge VAT if they don’t have your VAT number), while some (very few!) actually register for VAT in the UK if they do a lot of business here. The reverse rules still apply though, even if they have a UK VAT number. Like I said, it’s quite complicated!
In terms of entries to your VAT return, I haven’t done reverse charging in Quickfile so not sure how it handles it. However, the entries should be as follows:
You act as though you are both the supplier and the customer. So, calculate VAT on the full value of the supply. Then put:
the VAT in both box 1 (output tax) and box 4 (input tax)
the net value of the supply in both box 6 (sales) and box 7 (purchases).
The net effect to you should be zero as the above entries all cancel each other out.
Thanks for the clarification. The company does have a US business address. I don’t actually receive an invoice for the “selling fees”. It is automatically deducted by the selling platform at the time of payment from the buyer. The selling platform do provide full details of “selling fees” and “payment processing fees” for every item sold. So rather than create individual sales invoices in Quickfile I do two “monthly” spreadsheets, one for selling fees and one for payment processing fees and put these through as two invoices.
So if I understand correctly the “selling fees” will need to be RC but the payment processing fees will not need to be as they are VAT exempt
If the selling fees are essentially commission, then yes, that would be standard rated and so you need to apply the reverse charge.
Did you resolve the problem of your test “sale”? Personally, I would account for the VAT on it and then issue a refund. It’s a good idea to only use 1p as a test sale, then there is effectively zero VAT or commission to worry about.
On a separate note - how are you getting your “invoices” from your spreadsheet into Quickfile? Are you uploading them? Presumably you are on MTD and so you are no longer able to input numbers from spreadsheets, there needs to be a digital link to your accounting software.
Yes, I have solved my test “sale” issue. Have done exactly as you suggested. Just keeps VAT correct then.
Cheers for the heads up about MTD. We registered for VAT voluntarily and are, to date, still below the rolling 12 months threshold, so currently not on MTD. Am keeping a close eye on turnover though
