Setup Reverse Charge VAT
Important note: If you are operating under the Cash Accounting scheme (Cash VAT accounting), VAT Code V (Reverse Charge Goods) should not be used in an attempt to account for reverse charge goods.
Setup
VAT Rates
You will need to be using Dimensions version 2.43c or later to apply reverse charge accounting for VAT.
For new databases created using Dimensions 2.43c or later, a VAT Rate with the code V will have been created for reverse charge accounting.
If you have upgraded or converted to Dimensions 2.43c or later, you will need to insert a new GB VAT rate for reverse charge accounting.
To insert a new rate for reverse charge accounting:
Select VAT Rates to open the VAT Rates window.
Click on the Edit button and click on the blank entry at the foot of the VAT Rates list.
Enter a VAT code for the new entry. You might like to use code V so that the rate is easily identified but, if you already have a rate with code V, you can use any unused number or letter.
Enter the % rate. This should be the current standard GB VAT rate.
From the GB VAT menu, select GB VAT and from the sub menu select Reverse Charge.
A default description will be entered but you can amend this if you wish.
Click OK to save the new rate.
Sales Order Options
Reverse Charge Goods: Auto-calculate de minimis limit
Ticking this option will automate the tracking of the value of order lines for stock or price records that are flagged as Reverse Charge VAT Applies.
After the deduction of discounts, if the net value of these goods is more than the £5000 de minimis limit, the VAT code will be changed to a Reverse Charge VAT type VAT rate (rate code V or any other you have created) automatically.
The option will be ticked by default.
If you select to turn this option off (untick the box) then, for each sales order, you will need to decide whether the value of Reverse Charge VAT products exceeds the £5000 de minimis limit and apply the correct VAT code.
Stock and Price records
All stock and price records for which Reverse Charge VAT accounting is applicable should be flagged as such.
These goods include mobile telephones and computer chips.
For further information regarding Reverse Charge VAT, and legislation updates, you should refer to the HMRC web site.
Stock and Price records are flagged by ticking the Reverse Charge VAT applies option on the Info window that can be opened from the record.
We recommend that you do not flag your stock items until after the legislation comes into force on the 1st June 2007.
Customer, Prospect and Supplier Records
A 'Reverse Charge Goods' type VAT code can be entered as the default VAT code on Customer, Prospect and Supplier records if you know that transactions with these customers or suppliers will normally be subject to Reverse Charge VAT accounting.
Remember:
The use of Reverse Charge VAT rules and the applicable VAT Code relates to transactions between GB VAT registered suppliers and customers only.
The Reverse Charge VAT rules are product driven and it is better not to enter a 'Reverse Charge Goods' type VAT code as the default VAT code on customer, prospect and supplier records but to ensure that your stock and price items are correctly flagged as Reverse Charge VAT Applies.
Transactions
Existing batched transactions
If you edit existing batched transactions for stock items for which the 'Reverse Charge VAT Applies' flag has been set, the Reverse Charge VAT rules will be applied automatically.
Sales - If you are invoicing a Reverse Charge type item on or after 1 June, you should be applying the Reverse Charge VAT rules.
Purchases - If you receive an invoice on or after 1st June, then it could contain Reverse Charge VAT even if Reverse Charge VAT did not apply at the time you raised the purchase order.
Purchases
If you purchase goods for which reverse charge VAT accounting is applicable:
You should ensure that the VAT Code V is selected for the transaction.
You will not pay the OUTPUT VAT to your Supplier but the invoice you receive should detail the amount of VAT that should be accounted for on the purchase.
VAT code V will account for the VAT as OUTPUT VAT for which you are now responsible.
The VAT will also be accounted for as INPUT VAT which you may be able to recover.
Sales
When you sell goods for which reverse charge VAT accounting is applicable:
You should ensure that the VAT Code V is selected for the transaction.
The VAT will be shown in the VAT value field of the transaction but will not be added to the Gross.
The Gross value will be the same as the Net value of the transaction.
You will not account for or receive the OUTPUT VAT applicable to the sale except that the net value of the sale will be included in Box 6 of your VAT return.
If a Reverse Charge VAT transaction has been entered incorrectly and an adjustment needs to be made to the VAT element only, then the original transaction values should be reversed and a new transaction entered. It will not be possible to enter a Reverse Charge VAT only VAT journal.
Reports
In all reports, any Reverse Charge VAT will highlighted by being printed with an * (asterisk or star symbol). This will be explained in the key at the end of the report.
These reports include the Sales and Purchase Ledger Audit reports; Not Yet Printed reports, Current Batch and Current Period reports; All Transactions and the Fast and Wide reports.