Reverse Charge VAT
Important note: If you are operating under the Cash Accounting scheme (Cash VAT accounting), you will have to identify transactions that use Reverse Charge VAT type codes and account for them on your VAT Return outside of the Cash Accounting Scheme.
VAT Return
Box 1 – the purchaser should include the TAX value of transactions with Reverse Charge VAT codes
Box 4 – the purchaser should include the TAX value of transactions with Reverse Charge VAT codes
Box 6 – the seller should include the GOODS value of SALES transactions with Reverse Charge VAT codes
Box 7 – the purchaser should include the GOODS value of PURCHASE transactions with Reverse Charge VAT codes
The Importer/Wholesaler
In our example the Importer/Wholesaler is GB tax registered and located in the UK. The Importer/Wholesaler buys mobile phones in bulk from an exporter who is not located in the UK.
When he re-sells the goods under the Reverse Charge rules, he will not account for the OUTPUT VAT and will not receive VAT from the customer.
He flags the goods as applicable for Reverse Charge VAT.
The VAT should be shown in the VAT analysis on the invoice but will not be included in the totals (i.e. Gross and Net will be the same).Some additional text on the invoice will indicate to the purchaser that the item is subject to Reverse Charge VAT.
VAT values for Reverse Charge goods will not be added to Box 1.
The net value (goods value) of the sale of Reverse Charge goods will be included in Box 6.
The Purchaser/Retailer
In our example the Purchaser/Retailer is GB tax registered and located in the UK. He buys mobile phones to sell to individuals in the UK.
When he receives the goods under the Reverse Charge rules:
He flags the goods as applicable for Reverse Charge VAT.
Accounts for Reverse Charge VAT (OUTPUT) tax in Box 1.
VAT values for Reverse Charge goods are added to Box 1
Purchases of Reverse Charge Goods should not be included in Box 6
Accounts for Reverse Charge VAT (INPUT) tax in Box 4
VAT values for Reverse Charge purchases should only be included in Box 4 when they are also included in Box 1.
Net value of Reverse Charge purchase transactions should be included in Box 7 on the same return that they are reported in Box 1.
When he re-sells the goods under the Reverse Charge rules (i.e. to a GB VAT Registered customer), he will not account for the OUTPUT VAT and will not receive VAT from the customer.
The VAT should be shown in the VAT analysis on the invoice but will not be added to the invoice total (i.e. Gross and Net will be the same).Some additional text on the invoice will indicate to the purchaser that the item is subject to Reverse Charge VAT.
VAT values for VAT code type V will not be added to Box 1.
The net value of VAT code type V transactions will be included in Box 6.
When he sells the goods, NOT under the Reverse Charge rules (i.e. to a GB Non-VAT Registered customer or to a EU or Non-EU customer), he will account for OUTPUT VAT on these sales in the usual manner.
There is a small amount of setup required to enable the use of VAT code type V, please refer to Using Reverse Charge VAT accounting.