What's this "VAT Reverse Charge" all about then?

[Craig@Clarity]

This is not correct, I have been advised by UK accountant and HMRC sent me a EC Sales Return to fill in just a few weeks ago.
I have also had it confirmed by a tax specialist in the country where my client is located.

The ECSL maybe to mop up any sales prior to BREXIT but that should have been done by 21 Jan. Assuming you're based in GB, ECSL is not required anymore.

[Maslins]

I think the changes coming in now you're hearing about on the radio are for construction industry stuff, not relevant to the lion's share of posters on here.

HMRC were fed up with the little tradespeople contractors working for bigger contractors, stealing the VAT and disappearing. The little tradesperson contractor would add VAT to their invoices legitimately, collect it, but then go AWOL and not pay it to HMRC. Meanwhile the big construction firm they contracted for happily (and legitimately) reclaimed that same VAT.

With newer rules the little tradesperson contractor never actually gets the VAT. The big construction firm never pays it, so they do the reverse charge thing where they pretend they were charged it and pretend to reclaim it.

[TheCyclingProgrammer]

As I understand it, it's aimed at preventing VAT Carousel fraud and won't really affect your average IT contractor. It applies to the buying and selling of specific items between UK and EU businesses.

Reverse charge VAT to prevent carousel fraud (UK)

That’s actually something different. There is a domestic reverse charge process for certain goods relating to preventing carousel fraud but it’s not the same as the reverse charge on overseas supplies of services.

IIRC one of the motivations of the reverse charge is to prevent businesses from potentially gaining a tax advantage by purchasing from overseas suppliers.

If you can fully recover input VAT then it makes no difference if you purchase domestically or from overseas as you can recover the VAT on the reverse charge but if you cannot recover the VAT then the reverse charge ensures you still pay domestic VAT when purchasing from overseas suppliers. The aim is to shift where the tax is collected based on where the supply is deemed to have taken place.

Also worth noting that if you are not VAT registered, you obviously cannot account for the reverse charge but instead any overseas purchases of supplies where the U.K. is deemed the place of supply are counted towards your own turnover for the purposes of the registration threshold, as it’s treated as if you have supplied it to yourself.

[TheCyclingProgrammer]

For the benefit of 100% clarity, if your UK company is below the UK VAT threshold and therefore isn't VAT registered - Then for EU sales there's nothing to do with VAT at all?

The reverse charge will still apply to these supplies but that’s for the customer to account for. There is nothing that the U.K. business needs to do if they aren’t VAT registered.

[DaveB]

Happened to hear this mentioned in a radio ad for Xero, never heard of it previously but it came into effect from this month as I understand it.
Is it relevant to us itty bitty contractors? Is this the additional Brexit faff for companies trading with the EU or was that something else?

As I understand it, it's aimed at preventing VAT Carousel fraud and won't really affect your average IT contractor. It applies to the buying and selling of specific items between UK and EU businesses.

Reverse charge VAT to prevent carousel fraud (UK)

[Fred Bloggs]

For the benefit of 100% clarity, if your UK company is below the UK VAT threshold and therefore isn't VAT registered - Then for EU sales there's nothing to do with VAT at all?

[MPwannadecentincome]

What has changed since 1 Jan is the requirement to submit an EC Sales list no longer applies to UK businesses:

https://kb.taxcalc.com/index.php?Vie...y&EntryID=3124
https://www.gov.uk/guidance/vat-how-...-your-eu-sales

The poster above appears to have been poorly advised.

Oh this is good to know then, the last one I filled in was for a period covering the last part of 2020. So I never get another one of those forms in the post again ... yay!

[TheCyclingProgrammer]

So we now submit invoices to client inlclusive of VAT instead (before I didn't charge VAT) as I understand it?
And then pay VAT to HMRC in the usual way?

No, the reverse charge rules still supply. If the place of supply is outside the UK it’s outside the scope of UK VAT and if the customer is in the EU they will account for VAT under the reverse charge.

Similarly if you’re a UK business and you’re purchasing services from overseas and the place of supply is the UK you should be accounting for UK VAT on those purchases under the reverse charge.

What has changed since 1 Jan is the requirement to submit an EC Sales list no longer applies to UK businesses:

https://kb.taxcalc.com/index.php?Vie...y&EntryID=3124
https://www.gov.uk/guidance/vat-how-...-your-eu-sales

The poster above appears to have been poorly advised.

[Guesstimator]

None of this is required after 1 Jan 2021.

So we now submit invoices to client inlclusive of VAT instead (before I didn't charge VAT) as I understand it?
And then pay VAT to HMRC in the usual way?

[MPwannadecentincome]

None of this is required after 1 Jan 2021.

This is not correct, I have been advised by UK accountant and HMRC sent me a EC Sales Return to fill in just a few weeks ago.
I have also had it confirmed by a tax specialist in the country where my client is located.

[Lumiere]

The invoice needs to mention the VAT code of the recipient and every quarter you fill in an EC Sales Return to HMRC listing all invoices (in £ equivalent) by the VAT code of the recipient.

None of this is required after 1 Jan 2021.

[MPwannadecentincome]

It means you are not collecting VAT on behalf of HMRC, the recipient of the invoice has to deal with the VAT themselves.
I have seen reference to it's use in the construction industry in the UK, otherwise as with the above posters, it is used for EC sales invoices, the recipient in the EC has to declare the VAT to their own tax collectors rather than pay it to you. The invoice needs to mention the VAT code of the recipient and every quarter you fill in an EC Sales Return to HMRC listing all invoices (in £ equivalent) by the VAT code of the recipient. Not sure what HMRC does with that but in theory they could share it with the tax collector in the other country for them to pursue the VAT due.

[NotAllThere]

Is this the additional Brexit faff for companies trading with the EU or was that something else?

I think it might be. I've been developing ZUGFeRD compliant invoices for a German company, and VAT Reverse Charge keeps raising its ugly head. I'm afraid I just modify the code to give the correct output - I don't delve into the whys and wherefores.

[Wobblyheed]

I'm remotely contracting to a Danish client. My invoice is paid in euros and does not include VAT but has a Reverse Charge Tax code on it.
This was provided by the Danish agency. That's the sum of my knowledge.

[d000hg]

Happened to hear this mentioned in a radio ad for Xero, never heard of it previously but it came into effect from this month as I understand it.
Is it relevant to us itty bitty contractors? Is this the additional Brexit faff for companies trading with the EU or was that something else?