I have a supplier that is based in the EU and when I enter and pay their purchase invoices, I notice that 20% of the total that I pay them is being applied to my VAT liability and appearing in the list for box 1 on the detailed VAT report i.e. it is appearing as VAT due on sales.
I am confused for 2 reasons, firstly I do not understand why a purchase order payment is appearing in the VAT for sales and secondly as part of a flat rate scheme where I only pay 9.5%/10.5% why would the VAT for sales box 1 have this as 20% of the payment to the supplier?
For example
I have a PUR for booking.com and the VAT treatment settings for this Purchase order are 9.5% flat rate (which was our rate in year 1). On the PUR I have set the actual VAT amount to 0% as this supplier does not have VAT on their invoices.
The PUR is for a total of
Hi Tracy,
Based on your description I think Solar Accounts is applying the 'reverse charge' rule to these payments - under this rule 20% of the purchase appears in BOTH Box 1 and Box 4. These amounts cancel out so there is no effect on your Box 5 figure (ie. the amount due to HMRC).
Note also that the flat rate scheme does not apply when you purchase services from outside UK where the reverse charge is applied - see section 6.4 of VAT notice 733 for details:
https://www.gov.uk/government/publications/vat-notice-733-flat-rate-scheme-for-small-businesses/vat-notice-733-flat-rate-scheme-for-small-businesses
Regards,
