Compliance

VAT-registered businesses must report transactions where the reverse charge applies to avoid compliance issues. If you're dealing with a specific case, it’s advisable to check local VAT legislation or consult a tax professional to ensure compliance. For example, some services, like land-related services or admission to events, distance selling (B2C transactions) and consignments below a certain value follow special rules.

See: HMRC guidelines for Reverse Charge VAT in the UK

Reverse Charge for International Purchases 

For Purchases: When purchasing services from the EU, you must self-account for VAT. This means in the VAT return, calculate and report both the input VAT as if charging yourself VAT (this may be recoverable) and the output VAT as if you are the seller. This ensures VAT is properly accounted for even though the supplier does not charge VAT.

For trading of services between NI and GB, domestic UK VAT rules apply.

For goods from the EU, the UK uses an import VAT deferral scheme called Postponed VAT Accounting (PVA). Instead of paying VAT at the point of import, postpone and self-account for it in your VAT return as with services. Use the Monthly Postponed Import VAT Statement (MPIVS) from HMRC to confirm amounts.  

For trading of goods, NI is subject to EU VAT rules.

For Sales: Do not charge VAT on the invoice to your customer (provided they are VAT-registered). Instead, you must state on the invoice that the reverse charge applies, so the customer knows they are responsible for accounting for VAT. You still report the sale in your VAT return, but without VAT included.

UK Domestic Reverse Charge

The UK applies the domestic reverse charge for certain high-risk industries to prevent VAT fraud. Sectors where it applies include:

•  Construction (CIS Reverse Charge) where the contractor self-accounts for VAT instead of subcontractors charging it.
• Wholesale mobile phones and computer chips to prevent carousel fraud.
• Energy and emissions trading.

Designating a Tax Code as PVA and Reverse Charge 

Go to Setup > Codes Maintenance > Tax Codes and add a Tax Code or edit‍ an existing code in the list. 

• Check EU Trade ONLY if your business is registered in Northern Ireland and submits VAT Returns to HMRC. 
• Check PVA if dealing with imports. This is not used for services.
• Check Reverse Charge and enter a Rate. 

Completing the VAT Return

On the UK Return, the reverse charge element will be added to boxes 1, 4, and 7 for goods and boxes 1,4, 6 and 7 for services.

See:

Managing VAT (UK & Ireland)‍ 

Using Codes Maintenance 

The Purchase Transaction

Below is a Purchase Invoice of £200 that we are going to add to a VAT Return. It uses the V04 VAT Code with a rate of 0% resulting in 0 VAT charged:

The VAT Code in question is for Services and has a Reverse Charge rate of 20%:

The VAT Return

VAT due on EU Purchases of Services is calculated using the Reverse Charge Rate of 20%. This results in £40 being added to VAT on Purchases and Other Inputs (box 4) of the UK VAT return.  

The value calculated above will be added to boxes 1 for VAT on Sales and Other Outputs and 3 for Total VAT Due.

Reverse Charge Purchases are taxed at ZERO. In the VAT Return, the value of the VAT is calculated as you "SHOULD" have paid it (i.e., at the standard rate) and added to Purchases and Sales. As it is added to Purchases and Sales, the actual is ZERO, but the record remains.

The VAT Summary Report:

The net value of the Reverse Charge is Sales VAT minus Purchase VAT (Total VAT Due), making 0.00.

The VAT Summary Report:

The system adds the "Total value of EU Purchases of services ex VAT", in this case, £200, to Total Sales/Outputs (excl. VAT) (box 6) of the UK VAT Return.

The VAT Summary Report:

The Net Value of all Purchase transactions carrying tax codes flagged as BOTH Reverse Charge and Services is added to the total in Total Purch/Inputs (excl. VAT) (box 7) of the UK VAT Return.

The VAT Summary Report: