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Navigation: Value Added Tax > Domestic reverse charge VAT for construction services

Purchases by contractors

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Note: If you are on cash accounting, do not follow the steps below, please instead refer to Purchases by contractors (cash accounting).

To enter a purchase subject to domestic reverse charge:

1.Using the PIN or PAY transactions, enter the following in the header section:        

Total

Net value of purchase

Input VAT

No VAT

Net

Net value of purchase

2.In the analysis of net amount section, enter:

Line 1

Input VAT reclaimable (provided you can fully recover input VAT), analysed to the VAT input account. This should be a plus value.

Line 2

Value of reverse charged output VAT, analysed to the VAT output account. This should be a minus value.

Line(s) 3(4..)

Details of the analysis account(s) for the net amount of the purchase, as you would normally do for a purchase transaction. This account should be set to within the scope of VAT. If you need to change the scope, you can do so by selecting Set Up>Accounts>All, then selecting the account and Properties.

For example, for a purchase of £100 worth of services:

PIN_DRC

Screenshot showing the entry of a purchase subject to domestic reverse charge VAT
The Cost of sales: Subcontractor costs account is used as an example. You can use a different Cost of Sales/Expenses account if it is more appropriate, so long as it is set to within the scope of VAT.

3.If you are entering a PIN transaction, leave the Type of sale (for VAT purposes) setting as Normal.

Completing your VAT return

If you enter the purchase as described above, the VAT return will automatically be populated with the required values in the appropriate boxes as follows:

VAT return element

Included in VAT return

Amount included (per example above)

Entry from transaction above which populates VAT return

Reverse charged output VAT

Box 1

20

Step 2: Line 2: Credit: VAT - Output

Input VAT reclaimable

Box 4

20

Step 2: Line 1: Debit: VAT - Input

VAT exclusive amount of purchase

Box 7

100

Step 2: Line 3

If these do not appear correctly when running the VAT return, check that the following actions have been done:

you have entered both the output VAT and input VAT as described in Step 2. above

you have entered no VAT in the header of the purchase transaction as described in Step 1. above

you have not changed the analysis account used for the purchase to be Outside the scope of VAT

Applying the CIS tax deduction

If you need to also apply the CIS deduction, follow the same steps as above, but with the following differences to step 2:

an additional line is entered for the CIS deduction as a minus figure

the value in the Total and Net fields is the VAT exclusive amount less the CIS deduction

For example, a purchase for £100 (exclusive of VAT) of services with a CIS deduction of 20% should be entered as follows, using the PIN or PAY transaction:

PIN_CIS_&_DRC

Screenshot showing the entry of a purchase subject to domestic reverse charge VAT and the CIS tax deduction

The Creditors: HMRC (CIS) account needs to be created by selecting Set Up>Accounts>New. Do not tick Entries analysed to this account are normally within the scope of VAT.

HMRC (CIS)

Using this example, the VAT return will be populated with the same values shown in Completing your VAT return above.