Hello, I have a question: I sell on Amazon and every month I receive invoices from them for their fees and services on the day 31st of the month, however these fees are deducted from my balance every time a sale occurs, so I frequently use the pre-payment feature to register the money going out of the merchant account when the invoice has not arrived yet.
Most of these invoices are EC VAT exempted but I can see there is a VAT calculation within the generated invoice (VAT is calculated for each line then subtracted at the end under the sub-total), so should I select 20% or 0% VAT while doing the said pre-payments?
It only matters if you’re submitting your VAT return before you’ve received the invoice from Amazon, created the QuickFile purchase and allocated the prepayments to it. As long as the payments have been allocated at the point you submit the return they will be handled as per the VAT rules for the purchase, regardless of what you selected for the original prepayment.
Note however that ticking “apply reverse charge” on the purchase won’t be enough on its own to do the right thing on your VAT return. That tick box doesn’t actually apply the reverse charge rules (VAT in box 1, net in box 6) as required for services, instead it treats the purchase as an acquisition of goods (putting the VAT in box 2, net in box 9).
About the EC reverse charge, I file VAT myself so I would like to ask for a clarification on what you said about how QuickFile handles this, please: should I add the value in box 2 to box 1 & value in box 9 to box 6 to make the VAT return properly?
There are two very similar but distinct VAT mechanisms that can apply when you buy from overseas suppliers:
the “acquisition tax” mechanism that you have to use when you buy goods from an EU supplier and they have not charged you their local VAT
the “reverse charge” mechanism that you have to use when you buy services from a non-UK supplier (within or outside the EU) and the “place of supply” of those services is the UK
Confusingly, the box that is labelled “apply reverse charge” in QuickFile actually applies the acquisition tax rules instead of the reverse charge rules.
For goods acquisitions the net value of the purchase goes in box 9 on the VAT return and the VAT element (calculated as what you would have been charged by a UK supplier selling you the same goods at the same price) goes in box 2. Furthermore, these transactions must be accounted for on accruals basis (at the date of the supplier invoice) even if the rest of your VAT return is done on cash accounting.
For services (which is what Amazon fees count as) the reverse charge rule puts the net in box 6 and the VAT in box 1 “as if you were both the supplier and the purchaser”, so if you’re on cash accounting then these transactions should also be done on a cash basis.
In your case the cash/accrual distinction is irrelevant, since you always pay the fees in the same month you’re invoiced for them, therefore it’ll give the correct answer if you just use a manual adjustment to fix the VAT return. You’d need to subtract the VAT value from box 2 and add it to box 1, and subtract the net from box 9 and add it to box 6. Since the box 1 and 2 adjustments balance this won’t affect the total amount of VAT you have to pay, only the box in which it is reported.