If you determine that the place of supply (as explained in Purchases of services from abroad) of a purchase of services from an overseas supplier, 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 - 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.
For supplies of services, Great Britain and Northern Ireland are both considered to be within the UK for VAT purposes.
To enter the purchase:
Note: If you are on cash accounting, do not follow the steps below, please instead refer to Services subject to reverse charge VAT (if on cash accounting)
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 input VAT reclaimable (provided you can fully reclaim input VAT), analysed to the VAT - Input account. This should be a plus value. |
Line 2 |
Value of the 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, in the usual way. |
For example:
Screenshot of a PIN transaction for services subject to the reverse charge
| If you are entering a PIN transaction, leave the Type of sale (for VAT purposes) setting as Normal. |
| 3. You also need to manually edit the transaction to ensure that the net value of the transaction is included in Box 6. of the VAT return as follows: |
a)In any report, right-click on the transaction and select Edit Transaction
b)In the Entries to be changed box, select Creditors: VAT - Output
c)In the Net transaction value (£) box enter the net value of the purchase, as a minus figure
For example:
Screenshot of adjustment to ensure net transaction value is included in Box 6 of the VAT return
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 |
Amount included (per example above) |
Entry from above which populates VAT return |
Reverse charged output VAT |
Box 1 |
20.00 |
Step 2: Line 2: Credit: VAT - Output |
Input VAT reclaimable |
Box 4 |
20.00 |
Step 2: Line 1: Debit: VAT - Input |
Net value of purchase (deemed to be a 'supply') |
Box 6 |
100.00 |
Step 3 c): Net transaction value |
Net value of purchase |
Box 7 |
100.00 |
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
•the analysis account used for the purchase is set to being within the scope of VAT (by default, expense and cost of sales accounts are set to being within the scope of VAT - you can check this by following the instructions in Transactions outside the scope of VAT)
