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Reverse Charge

These are small supplies of services made from elsewhere in the world where the supplier is not registered in the UK. The customer does not have to pay VAT but has to report to HMRC as though they did.

The notional VAT and memo Sales Outputs will be calculated/reported at run time of the VAT Return with records identified by VAT codes R/S/T and VAT rate identified by the default Purchase Ledger VAT code. On sales invoices there will be a paragraph – “VAT Reverse Charge: VAT must be accounted for by the customer at the standard rate of VAT based on the VAT-exclusive amounts for the reverse charge goods or services.”

Example:  Services provided for £500

Purchase invoice posted to purchase ledger – Dr. Services £500 and Cr. Purchase Ledger Control £500 in the nominal ledger.

A memo £100 reported as VAT input tax (box 4) and a memo £100 reported as VAT output tax (box 1) in the VAT analysis with the date of the purchase invoice, a reference of the invoice number and a comment of ‘Reverse Charge’. The calculation is based on the Default purchase ledger VAT code which should be the same code as the standard rate.
Also a memo £500 reported as Sales Outputs (box 6) in the VAT analysis with the same details.

Extract from VAT notice 700/12 para 4.6 –

Box 1 (output VAT)

Box 4 (input VAT)

Box 6 (value of the deemed supply)

Box 7 (purchase value)

Reverse charges on Computer Chips and Mobile Phones purchases do not show a figure in Box 6 – See VAT Notice 700/12 Paragraph 4.6 and VAT Notice 735 for More Information.

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