Reverse charge Notice 741a

How to set up and account up for VAT for supplies received from outside the UK

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We have recently re-registered for VAT after hitting the threshold of £85k as a result of services that we receive from outside the UK that would have been vat taxable had they been supplied in the UK for which the reverse charge thus applies. We are a registered charity which means we are considered non-business for vat purposes.  This is the 1st time that I have come across reverse charge for vat and hence why I am looking for help. So I have got a few questions:

1. So far my research into it tells me that the net effect of this should be a £nil liability as the output tax = input tax based on those services received from abroad.

2. But because we are a registered charity with non-business activity, can we recover the input VAT for these services from abroad?

3. Do we have to notify our suppliers from abroad and give them our VAT reg No, however, most of those services we receive are paid by card.

4. We use Xero as the accounting system, so in terms of setting the tax rate does it have to VAT Exclusive or VAT Inclusive?

Replies (2)

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By Les Howard
20th Jul 2022 10:37

The Place of Supply is only in the UK if you are acting as a business in relation to those supplies. (EU/ROW and UK rules are not identical, so the supplier may take a slightly different view on this point.)
If the supplies in question relate to non-business activities, then the VAT on the Reverse Charge is not deductible. This will create a VAT loss.
Xero has a Reverse Charge VAT code. But you would have to journal the non-deductible VAT.

I think you will need to engage someone to review this in more detail and perhaps find a better solution.

Thanks (1)
By Jason Croke
20th Jul 2022 14:46

Les has coved the important points. You declare output tax on those overseas purchases and you cannot reclaim as input tax as you are a non-business organisation. You can only reclaim VAT if you were making taxable (VATable) sales.

I see from the charity website what you do, but obviously you purchase overseas services over £85k in value, hence the VAT registration. That is quite a lot of overseas purchases.

Is it possible to perhaps purchase certain services from the UK (and incur VAT but which don't count towards reverse charge turnover) and that way you can deregister for VAT again and benefit from the remaining overseas services and keep under the reverse charge threshold....or it might be that you have to pay big commissions and royalties and all your suppliers are overseas, whereupon, yes, you're stuck with a VAT registration due to reverse charge.

Thanks (1)