I've just moved onto the Flat Rate Scheme, and have a simple question relating to EU Reverse Charging.

My understanding is that if I purchase something in the EU, then the reverse charge applies but that I have to account for the VAT that would have been due in Box 1 of the VAT return.

But as I'm on the flat rate scheme, I can't reclaim the VAT for these services, so nothing should go in Box 4.

I'm not sure how to record this in Solar Accounts, so any help would be appreciated.

Hi Dave,

Section 6.4 of VAT Notice 733 says, "If your business purchases services from outside the UK to which the reverse charge applies: these supplies should be dealt with outside of the FRS. Exclude them from your flat rate turnover but record them in boxes 1 and 4 of your VAT return, as you would under normal accounting.".

See here for details:
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&propertyType=document&id=HMCE_CL_000345#P290_27495

To record this is Solar Accounts, set the VAT Treatment field to 'Purchase of Services from EU Supplier', then tick the small Up arrow next to the VAT Treatment field and ensure that 'Flat Rate Scheme applies to this transaction' is not ticked. Solar Accounts will then include the VAT amount in Box 1 and Box 4 of your VAT return.

Regards,

Mark

Thanks for the speedy reply.

The problem with doing that is that it then adds the item to Boxes 6 and 7.

When I spoke to HMRC today, they were explicit that it was only Box 1 and 4 that should be filled in.

I'm also a little bit confused by the Box 4 description in Section 7.5 which states

"As with goods and services you buy from suppliers in the UK, you must not normally claim VAT on any acquisitions of goods and related services from other EC Member States".

The RC mechanism appears (to me, at least) to zero out the VAT liability, which is surely tantamount to claiming back the input VAT.

Hi Dave,

Don't take the HMRC helpline as gospel - for tricky questions like this you can easily get two different answers from two different phone calls! It's best to look at the relevant VAT notice.

Under normal VAT rules the reverse charge transaction should affect Boxes 1, 4, 6 and 7. This is based on the section titled 'How do you deal with the reverse charge on services?' on this page:
http://www.hmrc.gov.uk/vat/managing/international/imports/importing.htm#3

This 'normal' rule, together with Section 6.4 of VAT Notice 733 leads us to believe that Boxes 6 and 7 should show the VAT-exclusive amount of the purchase (even though this is not explicitly stated in Section 6.4).

Your quote from Section 7.5 only applies to goods (and services directly related to those goods such as delivery charges). Services you buy from an overseas supplier will often be subject to reverse charge so will often appear in Box 4.

Regards,

Hi Dave,

Not sure what's meant by reverse charge but when we buy from Europe (such as software via download) , the seller asks for our VAT registration number and then we are not charged any VAT, so we treat it just like a purchase with no vat from a supplier who is not VAT registered. We just pay the net price and no VAT is mentioned on the invoice and none needs accounting for. Our accounts simply show this as Zero VAT.

On our VAT return I enter the amount of the EC acquisition in box 9, the same amount is also included in box 7. Box 2 (VAT due on acquisitions from other EC States) is always zero because we didn't pay any VAT.

This is the way we've done it for at least the last 5 years since we've been buying from other EC member states. It makes things really easy.

Mark

Thank you for your outstanding support (which confirms what I've read online).

That's solved it for me, and was the final piece of the puzzle before I decided to commit to purchasing - I'm moving from running QuickBooks under VM Ware - and Solar Accounts ticks all the boxes for me.

Thank you.