Changes to the EC Sales List by HM Revenue & Customs (HMRC) means that from 1 January 2010, businesses that supply services to customers in other EU Member States, where the customer is required to account for VAT using the reverse charge mechanism, will have to include them on an EC Sales List (‘ECSL’).

In order to account for the supply of services, two new VAT Codes have been created for EC VAT. These are detailed below.

These VAT Codes apply to the sales and purchase of services to and from the EU.

These VAT Codes apply to Invoices and Credit Notes for EU VAT Registered Customers and Suppliers nuda VAT Debit VAT Journals only.

The VAT Rates window is opened from the VAT Rates menu option.

The two new VAT Codes, 'X' and 'Y', on the VAT Rates window will be available for customers creating new databases using Access Accounts. If you have upgraded from a version before 2.50b, you will need to create the VAT Codes 'X' and 'Y' (Please see procedure below).

All Stock, Price and Resource records for which EU Reverse Charge VAT for Services is applicable should be flagged as such.

Stock, Price and Resource records are flagged by ticking the Service check box available from the EC Info window that can be opened from the relevant record. After setting up the records they can then be selected when a user is entering transactions on the system. (See Transactions section below).

We recommend that you do not flag your stock items until after the legislation comes into force on the 1st January 2010.

Note: An EC VAT 'Reverse Charge' type VAT code cannot be entered as the default VAT code on Customer, Prospect and Supplier records

VAT Codes 'X' and 'Y' apply to Invoices and Credit Notes for EU VAT Registered Customers and Suppliers and EU VAT Debit VAT Journals only.

When you sell services for which EU VAT Reverse Charge accounting is applicable, and the supply is subject to VAT, you should ensure:

When you sell services for which EU VAT Reverse Charge accounting is applicable, and the supply is not subject to VAT, you should ensure:

When entering a transaction for an EU VAT Registered Customer for which EU VAT Reverse Charge accounting applies, you should select a stock or price item that has been set as a Service. This ensures the Service flag will be set as on. You can also enter a text line and flag it as a Service.

For stock and price items, the Service flag is not editable from the transaction.

In selecting a text item, the Service flag is editable.

The Service flag sets a VAT Code default for the transaction:

You can change the VAT code to 'Y' where EC VAT Reverse Charge accounting is applicable, and the supply is not subject to VAT.

If required, you change the VAT code to something other than 'X' or 'Y' , but you will receive a warning message, such as: 'Are you sure you want to use a VAT code of type n for the supply of services to an EU VAT Registered Customer?'. Select OK to continue or No to cancel.

Note that the VAT amount is displayed as 'zero' on SOP transactions and no VAT value will be calculated. If you try and change the VAT amount you will receive a warning message: 'The VAT amount must be zero for VAT codes of type X or Y'. Any amount you have entered will be returned to zero.

Reverse Charge VAT (X) is not calculated for Sales and SOP transactions. When invoicing an EU VAT registered customer where the VAT code of 'X' is applied, the invoice will not display a VAT Rate. The invoice will be annotated to advise the customer that they must account for the Output Tax on these items with the text: “You must account for the tax on these services at your standard rate”.

When you purchase services for which EU VAT Reverse Charge accounting is applicable, and the supply is subject to VAT, you should ensure:

When you purchase services for which EU VAT Reverse Charge accounting is applicable, and the supply is not subject to VAT, you should ensure:

When entering a transaction for an EU VAT Registered Supplier for which EU VAT Reverse Charge accounting applies, you should select a stock or price item that has been set as a Service. This ensures the Service flag will be set as on. You can also enter a text line and flag it as a Service.

For stock and price items, the Service flag is not editable from the transaction.

In selecting a text item, the Service flag is editable.

The Service flag sets VAT Code default for the transaction:

The VAT Code is displayed as 'X' . The rate is displayed as the standard rate.

Please note that for Purchase Orders, X and Y only are available where the detail line is flagged as a Service.

When entering an invoice received from an EU VAT Registered Supplier and applying the VAT Code of 'X', the VAT value is calculated at the standard rate.

When entering Net values, Reverse Charge VAT is not added to the Net value to calculate the Gross. See example below.

When entering Gross values, Reverse Charge VAT is not deducted from the Gross value to calculate the Net.

Note that you may edit the Reverse Charge VAT value but this will not affect the Net or Gross values although the updated value is reported on the VAT Return.

Reverse Charge VAT (X) is calculated at the standard VAT Rate for EU VAT Debit VAT Journals.

When entering Net values, Reverse Charge VAT is not added to the Net value to calculate the Gross.

When entering Gross values, Reverse Charge VAT is not deducted from the Gross value to calculate the Net.

You may edit the Reverse Charge VAT value, but this will not affect the Net or Gross values although the updated value is updated to the VAT Return.

The Sales Invoice updates the EC Sales List with the following:

Reverse Charge VAT (X) is reported on the VAT Return. Please refer to VAT Reports table for description of the boxes updated.