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VT Transaction+

Note: If you are on cash accounting, do not follow the steps below, please instead refer to Raising a DRC sales invoice (cash accounting).

Introduction

For an overview, please refer to Sales by subcontractors.

The guidance below is to generate an invoice in the software - if you have generated invoices elsewhere and just need to enter the transactions in VT Transaction+, please follow the steps at Entering a DRC sales invoice.

To raise a sales invoice subject to domestic reverse charge:

1.Set up a service(s) by selecting Set up>Invoices>Products and Services, and select the VAT rate as Zero Rate. (This is not actually a zero-rated sale for VAT purposes, however the zero rate option will serve the purpose of including the sale in Box 6 of the VAT return).

Tick the box that says Do not print amount on invoice if it is zero.
The description of the service(s) should include reference to the VAT rate for the service, and the wording 'reverse charge' as this is required on the invoice by HMRC as explained in Invoice documentation below.
For example:

DRC service

2.Select the SIN transaction and in the Name/code drop-down, select the service(s) you created in Step 1. Leave the Type of sale (for VAT purposes) setting as Normal and save the transaction.

For example:

DRC service34

3.Ensure that your invoice document contains certain wording required by HMRC (see Invoice documentation below) - to facilitate this requirement you will need to create an invoice template for DRC services.

4.Generate the invoice document by clicking on the icon next to the transaction reference:

invoice icon

5.If you are on the flat rate scheme for VAT, domestic reverse charge transactions are excluded from the scheme, so the sale would be excluded in calculating turnover subject to flat rate VAT. Therefore, you will not be able to use the workaround described in Flat rate scheme and you should calculate the figures for your flat rate return manually.

Invoice documentation

You are required by HMRC in their guidance here, to state clearly on the invoice:

that the domestic reverse charge applies, and that the customer is required to account for the VAT; and

how much VAT is due under the reverse charge or the rate of VAT if the VAT amount cannot be shown, but the VAT amount should not be included in the amount charged to the customer

reference to ‘reverse charge’

HMRC provide the following example of this:

HMRC invoice example

Screenshot of HMRC's example of a reverse charge invoice (image published under the Open Government Licence v3.0)

To generate an invoice document in VT Transaction+ similar to HMRC's example, you need to:

ensure that the description of the service(s) you set up in Step 1. above, includes reference to the VAT rate for that service and the wording 'reverse charge'

create a new invoice template that does not include VAT in the amount charged, and also contains text at the bottom to state that the customer is to account for the reverse charge. This can be done by following the steps at Creating an invoice template for DRC services.

Applying the CIS deduction

If you need to also apply the CIS deduction, follow the same steps as above with the only difference being the following in step 2:

an additional line is entered for a CIS tax deduction service item

Using the same data as in the example above with a CIS deduction at 20%, the invoice is entered as follows:

SIN_CIS2

The CIS Tax service item needs to be set up using the method explained here, with a price of £0.00 (the actual price is entered directly in the Price column on the invoice) with the VAT rate set to Outside scope.