Setting up reverse charge for services received outside the UK

To set up Reverse Charge accounting for services from outside the United Kingdom you need to create VAT codes that are set up to update the VAT Return and EC Sales List.

• If you provide services to outside the UK that are subject to the Reverse Charge, you need to create a zero-rated Sales VAT code with the VAT Return Box 6 ticked and the EC Sales List Services box ticked. The code is then available in the Sales Ledger, Sales Order Processing, Invoicing and Importer modules.

• If you receive services from outside the UK that are subject to the Reverse Charge, you need to create a standard rate VAT code with the VAT Return Boxes 1, 4, 6 and 7 ticked. The code is then available in the Purchase Ledger, Purchase Order Processing and Importer modules.

Sales VAT codes

If you provide services that are subject to Reverse Charge accounting to the EU, you may need to create one VAT code for the countries you are registered in, and another VAT code for the countries you are not registered in. If your customers are in one country, you need to create one VAT code.

After the VAT codes have been created they are available in the Sales Ledger, Sales Order Processing, Invoicing and Importer modules. The VAT rate for these transactions must be set to zero percent.

1. Open the System folder and click MTD VAT Centre or click the Administration tab on the Ribbon Bar and then click MTD VAT Centre.

2. From the Action menu, select VAT Codes.

3. Select the icon on the toolbar or press CTRL+N.

4. In the Country Type box, select one of the following:

1. 'R' if you are registered in the EC country

2. 'U' if you are not registered in the EC country.

3. 'H' for non EC Reverse Charge.

5. In the Trans. Type box, select with 'S' for Sales or 'C' for non EC Reverse Charge.

6. In the VAT Code box, enter a number or letter to identify the code. This must be a code that is not already used. Then enter a description for the VAT code, for example 'RC Services'.

Important: Do not use 'Y' as the VAT code. These codes are used for apportioning delivery charges for transactions that are included on the Supplementary Declaration (SD) report.

7. Under EC Sales Listing (ESL), untick the Goods Value = Supplies box and tick the Services box. The box 6 - Total Value of Sales box under VAT Return Boxes remains ticked and the other VAT Return boxes are automatically unticked and disabled. The Goods Value = Supplies box under Supplementary Declaration (SD) is also automatically unticked.

8. Select the icon on the toolbar or press CTRL+S.

HMRC does not require that invoices indicate that a transaction must be accounted for under the Reverse Charge mechanism. However, to help your customer, it may be worthwhile having an invoice design for these transactions only with a statement that highlights that the transaction needs to be accounted for under the mechanism. To add a new invoice design, use the System - Maintenance - Report Layouts command. You could use the following text, or similar: These services are outside the scope of UK VAT. You may be required to make a reverse charge VAT declaration under Article 196 of EU Council Directive 2006/112/EC.

Purchase VAT codes

If you receive services that are subject to Reverse Charge accounting from different EC countries, you may need to create one VAT code for the countries you are registered in, and another VAT code for the countries you are not registered in. If your suppliers are in one country, you need to create only one VAT code.

After the VAT codes have been created, they become available in the Purchase Ledger, Purchase Order Processing and Importer modules.

1. Open the System folder and click MTD VAT Centre or click the Administration tab on the Ribbon Bar and then click MTD VAT Centre.

2. From the Action menu, select VAT Codes.

   Select the icon on the toolbar or press CTRL+N.

3. In the Country Type box, select 'R' if you are registered in the EC country, or 'U' if you are not registered in the EC country.

4. In the Trans. Type box, select 'P' for Purchase.

5. In the VAT Code box, enter a number or letter to identify the code. This must be a code that is not already used. Then enter a description for the VAT code, for example 'RC Services'.

Important: Do not use 'Y' as the VAT code. These codes are used for apportioning delivery charges for transactions that are included on the Supplementary Declaration (SD) report.

6. In the Rate 1 % box, enter the standard rate of VAT, and enter the date from which the VAT code will be used in the Date 1 box.

7. In the Nominal Code box, enter the Nominal Account to which the VAT will be posted in the Nominal Ledger.

8. Under VAT Return Boxes, tick box 1 - Tax Value on Sales. Box 4 - Tax Reclaimed on Purchases,
   box 6 - Total Value of Sales and box 7 - Total Value of Purchases are ticked automatically and the other boxes are unticked. The Goods Value = Supplies box under Supplementary Declaration (SD) is also automatically unticked.

9. Select the icon on the toolbar or press CTRL+S.