Reply to: Reverse VAT confusion

[TheCyclingProgrammer]

The accountant has changed the story now. Now 'Reverse charge VAT only need to be done if the subcontractor is performing specific types of work. Based on your work being IT consultancy reverse charge VAT would not apply.'

Who do I believe?

Believe who you like, but under the general rule the place of supply for B2B services is that they are performed where the customer belongs. You are the customer, which makes the place of supply the UK and therefore you need to account for the reverse charge on the supplies.

There are exceptions to the general rule but none that I know of that would apply to general IT consultancy services.

See:
https://www.gov.uk/vat-on-services-from-abroad

What I suspect is happening here is that you're not communicating to your accountant properly or there is a misunderstanding somewhere. Send the above link to your accountant and ask them to explain why that does not apply in this situation and see what they say.

Not all accountants are VAT experts, I should add. As I mentioned before, there are other types of "reverse charge". Are you sure they aren't getting confused with the domestic reverse charge on building sub-contractors? (https://www.gov.uk/guidance/vat-dome...ion-services)

[Fred Bloggs]

The accountant has changed the story now. Now 'Reverse charge VAT only need to be done if the subcontractor is performing specific types of work. Based on your work being IT consultancy reverse charge VAT would not apply.'

Who do I believe?

Well...... You could try talking directly with the VAT office. My own experience is that the poor bl**dy infantry on the front line who work at these government departments will try their best to help. Nothing to lose by asking for clarification.

[ladymuck]

I'd follow the latest advice from a qualified professional (keep the correspondence) and leave it off.

[cannon999]

The accountant has changed the story now. Now 'Reverse charge VAT only need to be done if the subcontractor is performing specific types of work. Based on your work being IT consultancy reverse charge VAT would not apply.'

Who do I believe?

[Maslins]

TheCyclingProgrammer's got it spot on.

As for the "why"...part of it may well be that bureaucrats like to make life difficult, and yes it may seem daft that effectively you pretend you were charged UK VAT then pretend to reclaim it...but there are some situations where it makes sense.

Eg UK businesses either not VAT registered at all, or registered but on the flat rate scheme. For them, EU suppliers could otherwise be a sneaky way to manipulate VAT in the supply chain. Combination of place of supply rules treating non VAT registered business simply as consumers (rather than as businesses), and the reverse charge, help prevent VAT being circumvented.

[ladymuck]

I have to say, it is a rather peculiar rule. The overseas supplier isn't registered for VAT in the country of origin but the UK purchaser has to do a in-out transaction that looks like a fudge to 'account' for something they haven't incurred.

I'm sure some real ale drinking, sandal wearing tax specialist gets it but I certainly don't.

[TheCyclingProgrammer]

My offshore supplier does not charge me any VAT or VAT-like tax (they are not in EU). So there is no tax to account for - the only VAT in question here is the tax I have collected from my client. That is just straight up paid back to the tax man at the end of the quater, no?

It doesn’t matter - you still need to account for the reverse charge on the offshore services as the place of supply is deemed to be the U.K, which means you are responsible for accounting for U.K. VAT on the supply. Those are the rules.

[cannon999]

For services, the purpose of the reverse charge is to ensure that VAT is accounted for in the place it makes most sense. Within the EU (and UK), VAT has to be accounted for somewhere.

Within the EU (and the UK rules are the same currently), for B2B the general rule for services is that they are supplied where the customer belongs (there are different rules for certain types of service though). This means the customer accounts for VAT instead of the supplier.

If the supplier accounted for VAT it would make it difficult for the customer to recover the VAT. By accounting for it at the customer end the customer can both account for and recover the VAT.

Also note that there are a number of “reverse charge” processes. Do not confuse them. The reverse charge on services is not the same as other reverse charges (such as the ones for construction and mobile phones/chips) and it’s also not the same process as accounting for VAT on imports and exports of goods.

My offshore supplier does not charge me any VAT or VAT-like tax (they are not in EU). So there is no tax to account for - the only VAT in question here is the tax I have collected from my client. That is just straight up paid back to the tax man at the end of the quater, no?

[TheCyclingProgrammer]

For services, the purpose of the reverse charge is to ensure that VAT is accounted for in the place it makes most sense. Within the EU (and UK), VAT has to be accounted for somewhere.

Within the EU (and the UK rules are the same currently), for B2B the general rule for services is that they are supplied where the customer belongs (there are different rules for certain types of service though). This means the customer accounts for VAT instead of the supplier.

If the supplier accounted for VAT it would make it difficult for the customer to recover the VAT. By accounting for it at the customer end the customer can both account for and recover the VAT.

Also note that there are a number of “reverse charge” processes. Do not confuse them. The reverse charge on services is not the same as other reverse charges (such as the ones for construction and mobile phones/chips) and it’s also not the same process as accounting for VAT on imports and exports of goods.

[malvolio]

OK, so we're clear now that his is nothing to do with YourCo's client, only with YourCo's VAT recording.

Most countries have some form of sales tax that operates like VAT in that it adds a tax to a sales transaction. If your offshore supplier's home base has one, they will have included it in their invoices to you. AIUI (and ICBW...) the reverse VAT is merely the mechanism whereby you ignore that part of their invoicing for VAT accounting purposes, using the non-UK boxes we usually ignore on the VAT100: in essence, I've been charged this specific sum of money which is not input VAT so please ignore it.

How the numbers are worked out is a different question. If your accounting software doesn't do it for you, you need to talk to an accountant that understands non-UK invoicing.

[ladymuck]

Again someone is yet to explain to me why I need to do that..
I paid for a service that doesn't have anything to do with VAT, why do I need to do extra paperwork here?

I can only fathom the answer is 'because it's the law'

https://www.taxadvisermagazine.com/a...rge-challenges

It doesn't explain the why* but does help to explain the how.

I know Xero has a facility when you're recording purchases to add Reverse VAT code instead of a normal VAT code and this then does the 'in and out' bits for you with no extra paperwork required, and it all feeds through to your VAT return. Not sure what accounting system you use but I'd expect most to have this functionality.

* the main 'why' seems to be so overseas suppliers don't have to register for VAT in the UK but that just makes me think 'so what?'

[cannon999]

if they are outside the UK then it’s likely you need to account for these services under the reverse charge. This means you report them on your VAT a return as if you’d both supplied and received the service, but it’s VAT neutral. This is an entirely separate issue to what you are invoicing your client though.

Again someone is yet to explain to me why I need to do that..
I paid for a service that doesn't have anything to do with VAT, why do I need to do extra paperwork here?

[TheCyclingProgrammer]

The fact you’re outsourcing some of the work is completely irrelevant here.

All that matters is:

1. Are you VAT registered? (Yes)
2. Where your client is based.

If the answer to 2 is also the UK, you charge them VAT on top of whatever you’re charging them.

As to the services received by the outsourced suppliers, if they are outside the UK then it’s likely you need to account for these services under the reverse charge. This means you report them on your VAT a return as if you’d both supplied and received the service, but it’s VAT neutral. This is an entirely separate issue to what you are invoicing your client though.

[cannon999]

IANAA

I thought the reverse charge VAT treatment was on services received from outside the UK, not on services provided. I would go with what Mal said as you can't not charge VAT if you're VAT registered.

Where is the client based?

UK

[ladymuck]

IANAA

I thought the reverse charge VAT treatment was on services received from outside the UK, not on services provided. I would go with what Mal said as you can't not charge VAT if you're VAT registered.

Where is the client based?