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We have received an invoice from a software provider in Ireland and on the invoice it states that "Reverse charge supply - customer to self assess VAT" - now I know that this means that a customer must pay the VAT to HMRC and recover it from HMRC all in the same VAT tax return.

My question is, how do you account for this in Xero - I use the VAT on Imports option in the VAT rate column but it just disappears when I approve the invoice and the amounts dont appear in the VAT audit report.

Any advice would be greatly appreciated.



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By cfield
13th Jan 2012 22:36

Why bother?

Why not just do the adjustment manually? Change the Box 1 and 4 totals on the VAT report adding the reverse charge and referring to the relevant transaction. After all, it doesn't affect the accounts if it's just a plus and minus adjustment, so why go to the bother?

Different kettle of fish if you are partially recoverable of course. Then best to just journal the difference.

Don't know about Xero but in Sage I would just set up a new VAT code with a zero rate, allocate it to the transaction and leave it at that.


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By JKnight
14th Jan 2012 12:37

Sage 50 Accounts has default VAT tax codes for handling the purchase of goods or services from EC suppliers, and for reverse charges.

My Xero demo data has a tax rate for 'Zero rated EC expenses' but I can not see how to get the reverse charge VAT to appear in boxes 2 and 4 of the VAT return.

The 'VAT on Imports' tax rate seems to be for instances where you have incurred VAT on good imported into the UK. In these cases you may need to enter an invoice with zero net and 100% VAT. This is not the rate to use for reverse charges.



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By Mark
16th Jan 2012 22:54

More of an indicator than a automated code

The Xero EC codes are more of an indicator for your audit purposes than something which will automatically go in and out of boxes 1 & 4. As CField has noted, unless it's partially recoverable it does not impact on the VAT payable. 

By using the EC codes you can use the Xero VAT Audit report to go through the EC transactions prior to submitting and assess what the VAT would have been if you do want to adjust 1 & 4.

That system works well for most Xero users without needing to have input and output codes for each of the EC member states which would add further to the number of default VAT rates in the system and make data entry less accurate for many users.

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