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VT Transaction+

Navigation: Value Added Tax

Purchases of services from abroad

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Introduction

If you purchase a service from an overseas supplier, you need to determine where the supply actually takes place to know whether or not it is outside the scope of UK VAT, regardless of where the supplier is located. The rules on determining the place of supply of services can be complex so you should refer to HMRC VAT Notice 741a.

The information in this section is for guidance only and should not be taken as definitive VAT advice, since individual circumstances may vary. For details of your obligations for services purchased from abroad, please refer to HMRC VAT Notice 741a.

Please note that reverse charge VAT referred to in this topic is not the same as Domestic reverse charge VAT for construction services.

Place of supply is outside the UK: Outside the scope of VAT

If you determine that the place of supply of the purchase is outside the UK, it is normally outside the scope of UK VAT and the purchase should be entered on VT Transaction+ with no VAT. If you are entering a PIN transaction, leave the Type of sale (for VAT purposes) setting as Normal.

There is some confusion as to whether purchases of services from abroad that are outside the scope of UK VAT should be included in Box. 7 of the VAT return. According to HMRC VAT Notice 700/12, there is only a small list of items that should not be included in Box 7, and this list does not mention purchases of services from abroad. On that basis, this type of purchase would be included in Box 7. This will happen automatically when you run the VAT return, provided you have not changed the VAT status of the transaction or analysis account to be Outside the Scope of VAT

Place of supply is the UK: Reverse charge VAT is due

If you determine that the place of supply of the purchase is the UK, it is normally subject to UK VAT under the reverse charge mechanism.

Output VAT has to be accounted for and paid to HMRC by you, as the customer, rather than the supplier, hence the term reverse charge.

Output VAT should be included in Box 1 of your VAT return. Input VAT is also reclaimable (on Box 4. of your VAT return) by you on the same transaction (provided you can fully recover input VAT). The net value of the purchase also needs to be included in Boxes 6. and 7. of your VAT return.

To enter a purchase subject to reverse charge VAT on VT Transaction+:

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

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

Line 2

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

Line(s) 3(4..)

Details of the analysis account(s) for the net amount of the purchase, in the usual way.

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

4.Save the purchase invoice

For example:

Screenshot of the entry of a purchase of reverse charge services 

Screenshot of the entry of a purchase of reverse charge services 

 

The entries in the screenshot above will ensure that output VAT of £20.00 is included in Box 1 of the VAT return, input VAT of £20.00 is included in Box 4, and the net value of the transaction is included in Box 7 (Ensure that you do not change the transaction or the analysis account for the purchase to be outside the scope of VAT, otherwise it will not appear in Box 7.).

However, you also need to manually edit the transaction to ensure that the net value on the transaction is included in Box 6. of the VAT return:

1.In any report, right-click on the transaction and select Edit Transaction

2.In the Entries to be changed box, select Creditors: VAT - Output

3.In the Net transaction value (£) box enter the net value of the purchase, as a minus figure

Screenshot of adjustment to ensure net tranaction value is included in Box 6 of the VAT return

Screenshot of adjustment to ensure net tranaction value is included in Box 6 of the VAT return

The adjustment above will ensure that Box 6. is populated with the net value of the purchase of £100.00.

Please note that if you operate the flat rate VAT scheme and use the workaround described here to account for VAT, you may have to enter reverse charge transactions differently to the steps above.

Completing your VAT return

If you enter the purchase subject to the reverse charge along with the manual adjustment 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

Reverse charged output VAT

Box 1

Input VAT reclaimable

Box 4

Net value of purchase (deemed to be a 'supply')

Box 6

Net value of purchase

Box 7

Impact of leaving the European Union

From 1 January 2021, the principle of reverse charge accounting on purchases of services from abroad should not change, in that if the place of supply of a service purchased from an overseas supplier (whether they are from the EU or the rest of the world) is determined to be the UK, it is subject to UK VAT which is charged by the customer through the reverse charge mechanism as described above. If the place of supply is outside the UK, it is outside the scope of UK VAT.

Furthermore, for supplies of services, Great Britain and Northern Ireland are both considered to be within the UK for VAT purposes.