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How do I account for Reverse charge in my tax return?

Reverse Charges VAT

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Hi  I'm using Capium cloud based bookkeeping and have to account for Reverse Charge VAT.  I understand how to complete VAT Return using boxes 1, 4, 6 & 7 which then cancels the VAT element out.  My question is do I have to journal out the sales element for self assessment so it shows a true reflection of actual sales?  In my head, if I were to leave the sales element of the reverse charge in, this would skew the actual profit or loss made in the tax year.

Hope someone can confirm that I've got it straight in my head.

Thank you.

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By Cheshire
24th Oct 2016 07:44

Ive not idea what Capium cloudy stuff is.

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Replying to Cheshire:
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By JRVA
23rd Oct 2016 21:49

My apologies, I may have misled you by not including enough information to give any advice.

So here goes: Goods are sold through Amazon by a VAT registered client. The goods are sent to non-VAT registered consumers in other EU countries as well as the UK. The goods are sent from the UK and only the UK. Amazon provide invoices showing sales less their service fees. VAT on the service fees is to be accounted for by the customer using the reverse charge application.

To account for the reverse charge VAT I would include the fee in the purchases total (net) and the VAT on purchases (at 20%) as usual but then would also include the service fee at the same cost in the sales total (net) and the VAT on sales total as well. The net effect would then be zero VAT. Which is great and what we want it to do.

So my question really is, if I credit Sales with the reverse charge net amount, it would surely increase client's sales unfairly for their Self Assessment - so is it reasonable to want to adjust the sales figure for income tax purposes.

I hope this clears up my initial question and you can just put my mind at rest.

Thanks

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By Cheshire
24th Oct 2016 08:15

So Im assuming that your client has provided Amazon with their VAT number.

Why are you adding the service charge in to your sales/VAT on sales. They are not sales. Your client is being charged the fees by Amazon so they are 'purchases'.
Surely the software can cope with this?

You must account for VAT on sales on the sales price PRIOR to the fees being deducted.

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By JRVA
24th Oct 2016 00:24

Yes, my client has given them their VAT number and I am basing the VAT element on the gross sales and not sales less the fees being deducted.

When I've spoken to the VAT office they explained that the way to deal with Reverse charge is as given in my previous text. My client has not been charged the VAT on their purchases so cannot claim it as input tax alone, which is why the offset of the output tax is made to cancel the VAT element out completely on the services provided but, in doing this it increases their net Sales for VAT purposes - therefore I'm assuming that I have to make an adjustment somewhere so that the correct Sales figure is used for income tax purposes.

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By Cheshire
24th Oct 2016 00:59

Which vat guides have you read through?

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By JRVA
24th Oct 2016 01:51

Vat 700/12 and I've spoken to the VAT office and had it in writing from them that boxes 1, 4, 6 & 7 need to be completed for reverse charge on EU Service fees - is there a Vat notice that says differently?

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By Cheshire
24th Oct 2016 07:46

Best way to sort this is via Capium. They should tell you how to enter this into the VAT return, that's what you pay your subs for with cloudy stuff

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By Matrix
24th Oct 2016 10:51

VAT is not booked to the P&L. The entries would net out in the VAT account. If you are booking the fee to purchases and accounting for the reverse charge correctly then the net purchases and VAT account will be correct. If you make an adjustment for the Amazon fee to sales too then this has nothing to do with VAT, this is just an accounting adjustment.

I find cloud accounting packages lacking when it comes to reverse charge VAT.

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By Matrix
24th Oct 2016 10:53

Sorry posted twice, I find AWeb lacking too these days but note there is now an edit button. Don't know how long it has been there as not a frequent visitor these days....

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