VAT on EU supplies and services

QuickFile does not support the reverse charge.

It has a checkbox that’s labelled “apply reverse charge” but what that actually does is to apply the rules for EU acquisitions of goods, not the reverse charge.

The way I’ve had to deal with it is to tick the “reverse charge” box anyway and then manually adjust my vat return to move the services vat from box 2 to box 1 and the matching net from box 9 to box 6, but that won’t necessarily work if you’re on cash accounting (acquisitions are always handled on accruals basis but I believe reverse charge transactions for overseas suppliers of services should be done on cash basis - I don’t know for sure as I’m not an accountant and I don’t use cash accounting for my business).

To accurately record a reverse charge purchase you’d have to explicitly create a sales invoice to represent the sale side of the RC process, and a purchase including VAT without ticking the “reverse charge” box. This is fiddly but doable, first a couple of one off setup steps:

  1. Create a new merchant bank account in QuickFile called e.g. “Reverse charge holding account”
  2. Go to the chart of accounts, expand assets and liabilities, find the bank account you just created, click the settings icon and tick to allow this nominal to be used in sales invoices
  3. Create a dummy client for reverse charge transactions.

Now each time you have an invoice you need to RC you would create:

  1. The purchase record as normal against the real supplier, with the net as what they charged you and with the appropriate UK vat rate (usually 20%). The gross total will be more than you paid, this is ok.
  2. A sales invoice on the same date for the dummy RC client, for the same net and vat rate as the purchase, but click the cog wheel icon in the description box and select the RC holding account as the sales category.

On the date you pay the supplier you’d mark both the sale and the purchase as paid using the RC holding account. This will leave the holding account overdrawn by exactly the net amount you owe the supplier, and you can tag the bank payment as a bank transfer to the RC holding account to balance everything up.