I've purchased some goods and services from the USA and paid in dollars on my own credit card. I entered them as unknown supplier and paid from directors loan account and allocated to the appropriate expense account. No vat was on the invoices of course, so i've entered the total amount and set the vat to 0% and selected goods or services outside the EU.
However, it's put them in Box 1 as VAT on Sales and then they have also appeared on the VAT on Purchases list and showing the vat element of the total price.
I'm really confused how this has happened. Where am I going wrong?
Hi Sarah,
The rules for VAT on trade outside the UK can get pretty complicated. In this case Solar Accounts is applying the 'reverse charge' procedure. In the UK your supplier collects VAT and passes it on to HMRC, but under the reverse charge procedure YOU pass the VAT amount to HMRC instead of your supplier - this is why it appears in Box 1. However since this is a purchase you can also reclaim the VAT amount - so it appears in Box 4. The net result is this transaction doesn't affect your VAT liability. Personally I can't see why it has to bee so complicated, but those are the rules! You can find out more about the reverse charge procedure in section 16 of VAT Notice 741:
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&propertyType=document&id=HMCE_CL_000346
Finally, to change the VAT rate used in this calculation you can click the little up arrow to the right of the VAT Transaction box in the transaction window.
Regards,
Thanks for that. So basically it has to show it that way, but they cancel each other out in the end, and the final vat figure remains unaffected. That makes sense now!
Regarding your last comment, why would I want to change the vat rate for those calculations? It was set to 0% which it needs to be as no vat was charged.
Hi Sarah,
Sorry I wasn't clear - I meant the VAT rate that is used when calculating Boxes 1 and 4. For example if you were recording a transaction prior to December 2008 you would change this from 15% to 17.5%.
Cheers,
ah right, oh well I had pre-set it to 17.5% from the off so that's ok.
