Hi I need to ask if we are uploading our purchases and sales from excel in order to file the VAT under MTD .How can we check the EU supplies and services coming up in the VAT return as reverse charge as I can not see any option of VAT codes like T3,T7,T4,T9, etc which makes it easy to see which entries are for the EU supplies or services?
Thanks
Hello @AteeqHussain
QuickFile doesn’t currently support reverse charges for services, only goods.
This will need to be recorded through manually adjustments for the time being I’m afraid.
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:
Now each time you have an invoice you need to RC you would create:
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.
My exact issue but my purchase invoice doesn’t have a net, vat, gross - just a single sub-total and a phrase ‘VAT Reverse Charge Procedure’
It all works if I use this figure… but is this correct for the VAT return and the Reverse Charge Procedure?
I believe so, yes. The way the reverse charge works, you treat the amount you paid to the overseas supplier as the “net” and add the appropriate rate of UK VAT on top of that (which goes in box 4 like it would with any normal UK purchase), but then you also pretend you were the supplier and declare the same amount of UK VAT in box 1 as a “sale”.
The overall effect is to put you in the same position you would have been in had you purchased the service from a VAT-registered supplier in the UK - in that case you would have paid the VAT to the supplier and then got it back from HMRC, in the reverse charge case you both “pay” and “reclaim” on the same VAT return. This seems pointless at first glance but it is necessary if your business is partially exempt, where you still have to pay all the VAT but you’re only entitled to claim some of it back.
If you’re creating dummy invoices, wouldn’t that screw up your turnover for tax purposes (not VAT) at the end of the year?
No, the trick is when you
For a purchase of net value X and reverse chargeable VAT Y (= 20% of X), the nominal entries that my process creates are as follows:
At this point the RC holding account has had debits of X+Y and credits of X+Y+X, so overall is showing overdrawn by X. The actual payment you made to the real supplier is then accounted for as a bank transfer of X out of your current account and into the RC account, returning it to zero balance, and the net effect of all this on your nominal accounts is simply
exactly as it would for a UK purchase of value X with no VAT. However your VAT return will show X in boxes 6 and 7, and Y in boxes 1, 3 and 4 as required.
(OK, technically it also adds Y to both the sales and purchase tax control accounts but those will cancel out on the vat return and not affect the overall liability)
I’m melting my brain on transfers …
I’ve created my RC Bank holding Acct and the dummy sale and real purchase with VAT added to the Net value.
This item was paid for on a credit card … so do I pay it through the RC and then transfer to CC and then transfer to bank?
You’d pay both the dummy sale and the real purchase from the RC account and then transfer the net amount from the CC account to the RC holding account. When you later come to pay off your credit card bill that would be a transfer from current account to the CC account in the normal way.
Still being dense… I don’t have an net amount in the CC account. The net amount is in the RC account. IF I transferred from the Current Account to the CC account I would have a balance (as the purchase was paid for the RC Account), but I can’t transfer the balance
If you’ve followed my procedure then once you’ve “paid” (in QuickFile terms) both the real purchase and the dummy sale from the RC account, then the RC account should be left overdrawn by the net amount of the purchase, and the transfer from the CC account (representing the actual payment you paid out) will return the RC account to zero.
The figures are all correct, but they are balances. RC is overdrawn by £860 and CC is up by £860.
How do I transfer a balance? Should I create a dummy line - if so - where?
Go to the credit card “bank account” statement and there’s a green button at the top to + Input new transaction, press that and then enter a “money out” transaction for £860 with a suitable description (e.g. “payment to Some Supplier”). This will then show as untagged and you can tag it as a bank transfer between accounts the same as you would with something imported from your bank feed.
This topic was automatically closed after 3 days. New replies are no longer allowed.