The following information is for general guidance only and should not be taken as definitive VAT advice, since individual circumstances may vary. To determine the VAT treatment for your particular transactions please refer to HMRC guidance or seek tax advice from an accountant.
For an overview, please refer to Sales by subcontractors.
The guidance below is to generate an invoice in VT Transaction+. 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.
Note: If you are on the cash accounting scheme for VAT, refer to Raising a DRC sales invoice (if on cash accounting) instead. If you are on the flat rate scheme for VAT, and raise the invoice as described below, 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.
1.Create an invoice document template
This needs to contain certain wording required by HMRC - see Creating an invoice template for DRC services.
•Select Set up>Invoices>Products and Services>New
•Select the VAT rate as Zero Rate (Note: this is not actually a zero-rated sale for VAT purposes, however this will enable the sale to be included in Box 6 of the VAT return.)
•Enter the description of the service which should include the actual VAT rate for the service, and the wording 'reverse charge' (as required on the invoice by HMRC - see Invoice documentation below)
3.Raise the invoice
•Select the SIN transaction
•In the Template: field, make sure the template you created in step 1. is selected:
•In the Name/code drop-down, select the service(s) you created in step 2
•Leave the Type of sale (for VAT purposes) setting as Normal and save the transaction.
You can then print, email or save a PDF of the invoice in the normal way as described in Printing an invoice.
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:
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 2. above, includes the actual 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:
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.