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Domestic reverse charge and FRS

How to pay subcontractors VAT under the flat rate scheme

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I have a CIS client under FRS. They provide services to end users (landlords mainly) so they are not subject to DRC. They recently received an invoice from one of their subcontractor which is subject to DRC, so they kept the VAT portion to pay HMRC through their VAT return. The invoice has been recorded in Quickbooks using the Reverse charge (RC) code. However, when proces the VAT return at the end of the quarter, that transaction did not apprear in the VAT return in Quickbooks. QB is now saying their software does not support RC on flat rate scheme. My concern is, is it the issue for QB or FRS businesses cannot not deal with their subcontractors RC at all. How are they going to pay the VAT they kept to HMRC then? 

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RLI
By lionofludesch
14th Oct 2021 11:12

Well, they'll be claiming it all back in all probability, so I wouldn't worry too much.. The Lord giveth and the Lord taketh away.

Can you just make a manual adjustment in QB ? I'm no QB expert so I'm just asking.

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Replying to lionofludesch:
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By Matrix
14th Oct 2021 12:46

Claiming input VAT under FRS?

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Replying to Matrix:
RLI
By lionofludesch
14th Oct 2021 13:05

Matrix wrote:

Claiming input VAT under FRS?

That's a fair point and it's a great illustration of why you shouldn't be relying on random strangers on an internet forum. What do they know ?

So the other issue is - should the trader still be on the FRS ? There may still be an advantage or there may not - it'll depend on the numbers.

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By Paul Crowley
14th Oct 2021 12:35

Sounds to me that journals are required

VAT is just too complicated for MTD software to cope with all the variations and options.

Time to go back to spreadsheets and bridging software?

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Replying to Paul Crowley:
RLI
By lionofludesch
14th Oct 2021 12:43

Paul Crowley wrote:

VAT is just too complicated for MTD software to cope with all the variations and options.

Well, isn't that just the nub of the MTD problem ?

Software just can't cope with a simple issue that a competent human could deal with in seconds.

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By Paul Crowley
14th Oct 2021 13:01

Agree completely

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By rmillaree
14th Oct 2021 15:42

sanjarkhan
"QB is now saying their software does not support RC on flat rate scheme."

I would be surprised if that was the case - are they not actually saying you as an accountant need to work out the manual adjustments that are needed before you submit the vat returns?

As far back as i can remember we have had annoying stuff to do - ie manual
calcs - (anyone remember when reverse charge services came in?) before submitting vat returns - trust me there will be manual adjustments that can be done here to get the correct submission so i dont see theproblem. I suspect the workaround is possiblyon google.

Perhaps i am old dinasour in that i see it as my job to workout what goes on vat return (a)
what software has prepped (b)
and adjust the difference if necessary.

You MUST start though by working out what should go on the vat return based on correct principles - and that isnt exactly made simple by hmrc unfortuantely -especially if you are over 50 and have failing memory.

It doesnt help with a boat load of comments giving cryptic clues about whether input vat can or cant be reclaimed - my failing memory thinks vat can be reclaimed here with full sales vat being acounted for as the item is excluded from frs calcs and treated under normal vat rules (Lord giveth and the Lord taketh away principle :)) -

do read section13
https://www.gov.uk/guidance/vat-reverse-charge-technical-guide#flat-rate...

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Replying to rmillaree:
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By EllaB
18th Oct 2021 10:29

"QB is now saying their software does not support RC on flat rate scheme."

I had a full on 'heated discussion' with QB on this issue - their online offering does not include the entries for a reverse charge transaction but they are insistent the VAT return it produces is compliant with VAT legislation and HMRC have approved the return as prepared.

Luckily the client I had with the issue was not required to file under MTD and so we did it 'old school'. Now he is required to file under MTD he is off the FRS...

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By sanjarkhan
15th Oct 2021 10:29

Thanks everyone for your inputs. I find out Quickbooks does have a way around to deal with it manually. Just have to put the payable amount in the Adjust link in the VAT return itself. Unfortunately they put some cowboys on the chat who does not bother to go a step ahead and help their customers. The person in the chat advised me to use another software to deal with this situation.

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