Reverse charge on the VAT return - The Book-keepers Forum (UK)

FoxAccountancyServices · Expert

Reverse charge on the VAT return

Stardoe · Guru

Hi Michelle,

As far as I am aware purchases subject to the reverse charge are accounted for in Box 7 with the VAT amount included in Box 1 and Box 4. This is how Sage treats it anyway. Quickbooks seems to treat it in a similar fashion.

FoxAccountancyServices · Expert

According to a VAT bod on AccountingWeb, the item should appear in box 6, also. And indeed, the HMRC listing I have included in the OP states this too.

A few years back, when I phoned the VAT helpline, this was the advice they gave me too..

so I am super confused!!

Cheshire · Master Book-keeper

Hi
Might sound a daft question but have you tried the Quick Books Forum?

Stardoe · Guru

I can't see any reason to include it in Box 6....it's not a sale, it's a purchase and would need to be accounted for. If you enter it in the total sales as well, wouldn't it effectively cancel out the purchase? (No VAT expert!).

FoxAccountancyServices · Expert

Morning Pauline and Joanne

Joanne, I have been on the QB forum, and someone does ask this question, but no one has replied! Which is bizarre, as they have a lot of the QB team responding on there.

I agree, Pauline, it's not a sale, yet the HMRC breakdown above does say to include "goods or services that you have purchased that are subject to the reverse charge" The software builders tend to know what they are doing, hence why I am super confused - am I missing something? :)

I have been using T24 on sage - Standard rated purchases of services from suppliers in EC - as it seemed to be posting as HMRC wanted - to Box 6. I notice they have since brought in a T20 which says "reverse charge". I haven't used this yet, but I am assuming it doesn't post to Box 6? Is this what you have been using?

When I spoke to Sage about not renewing my Client Manager support, they mentioned there were new developments in the latest versions which dealt with VAT on transactions with other countries. I assumed this was related to the 2015 Mini One Stop Shop HMRC will be introducing. My old sub hasn't run out yet, so I may give them a call tomorrow, and just check with HMRC too.

I asked a VAT expert on AccountingWeb and he seemed to think box 6 inclusion was correct

When I first encountered Reverse Charge, I called the helpline, and I remember being told to post to box 6. I assumed this was because the client was able to claim the VAT back, and so it needed to be cleared from the return. However, you know what HMRC can be like

So, I am still confused. I am surprised no one else has commented on this, to be honest. I had hope Vince or GR Robbins might have come across this issue. And Shaun not making a comment? Well, I feel the world is not as it should be! LOL (Come on Shaun, throw in your 2p!)

Stardoe · Guru

Hi Michelle,

Yes, I have been using the T20 code on Sage as you said, which posts to Box 1, 4 and 7. If HMRC has advised to use Box 6, I guess it must be right......HRMC is always correct....right??

FoxAccountancyServices · Expert

Just spoken with HMRC and they say Box 6 should be included..

On to Sage!

-- Edited by FoxAccountancyServices on Monday 22nd of July 2013 11:19:29 AM

FoxAccountancyServices · Expert

Sage say that T20 is for mobile phones and computer chips, to prevent Carousel Fraud. I have asked them to provide some feedback to the developers to make that description easier to understand!

T24 is the correct code for, what would be, standard rated VAT purchases.

Onto QB!

FoxAccountancyServices · Expert

OK... Quickbooks have a code called RC which is for Reverse Charge but again its for the Carousel Fraud thingy!

Stardoe · Guru

Lol...it gets more complicated by the minute! Forgive my ignorance but what is Carousel Fraud? And is it something I should be aware of?

FoxAccountancyServices · Expert

Something to do with the black market. If your client isn't selling mobile phones, or computer chips, I think your ok ;)

Shamus · Forum Moderator & Expert

With a Carousel fraud one plays the system of the seller being the unpaid collector and the UK being part of the EU.

I'll try to show how it works and then go through a simple example

Import goods that were zero rated in the country of origin (must be in the EU) but not in the UK.

No VAT paid at point of entry.

Sell goods on to a related party and charge VAT on the sale.

The goods are sold from one person to another but often there is no actual movement of the goods and each sale is simply creating a paper trail.

there will be several companies in the chain and each appart from the first will legitimately pay its VAT.

The first company will go belly up / owners disappear and the VAT will not be paid.

The last company in the chain sells the goods for export (sometimes back to the original seller or to a foreign company that sells back to the original seller) and reclaims the VAT from HMRC.

Because the first company in the chain never paid VAT on the goods HMRC will be paying out money that it never actually received.

The fraud is more difficult to prove than it sounds. The first company in the chain is invariably owned by a non UK national who will disappear meaning that HMRC really need to prove wrong doing by the others in the chain.

Lets take a small example.

Company A buys goods from France for £1m with no VAT liability

Company A sells good to company B for £1.2m + VAT of £220k

Company B sells goods to company C for £1.4m + VAT of £280k

Company C exports the goods back to the EU for £1.5m (I've kept with sterling rrather than Euro's for simplicity).

Now look at what should have happened with the VAT.

Company A should have paid £220k to HMRC

Company B should have paid £60k to HMRC

Company C can reclaim £280k in VAT from HMRC

Hmrc will however have only received £60k VAT from company B as company A has disappeared meaning that the country is £220k worse off.

In reality this was a very simple example and there will be many more companies involved in the chain.

Also a very small example in that the reality is that this fraud costs the country billions.

The above fraud would also work on a lesser scale where the European originating point has a lower rate of VAT on the goods rather than no VAT but of course the rewards for the criminals would be less.

The only way that I can see to obliterate this fraud is for UK VAT to be charged on all EU goods at point of entry regardless of the VAT rate in the originating country and the goods not released until payment received by customs.

Of course, one then asks whats the point of being in the EU if EU goods are treated as per goods from anywhere else in the world.

Hope that the above made sense.

Which fraud do you want next? Long firms? Ghost employee's?... lol, this subject is like porn for accountants.

Wella · Expert

Shamus wrote:
With a Carousel fraud one plays the system of the seller being the unpaid collector and the UK being part of the EU.

I'll try to show how it works and then go through a simple example

Hi Shaun

Would not like to see a complicated example

Bill

PS I think there may be a typo on HMRC guide regarding EU acquisitions, as it does clearly say Fill in box 6 & 7 but this makes no sense. What they haven't mentioned is box 9, which you do need to fill in, so I guess they meant box 9, not box 6.

This is just my theory but it makes more sense.

Extract from HMRC:

How do you deal with the reverse charge on services?

You calculate the amount of VAT - Output Tax - on the full value of the services supplied to you, and then fill in the relevant boxes on your VAT Return as follows:

put the amount of VAT you calculated in Box 1, and if you're entitled to reclaim the VAT on your purchase of these supplies, also put the same figure in Box 4 (this in effect cancels out the figure in Box 1)
put the full value of the supply in both Box 6 and Box 7 (Should it read Box 9?)

FoxAccountancyServices · Expert

Bill, I think because reverse charge is on services, this is why it misses box 9.

Shamus · Forum Moderator & Expert

lol Bill,

by complex example I was just really implying that there are many more intermediate companies (dozens) involved in an attempt to divorce the final refund from the original purchase.

Its basically exactly the same principle as money laundering.

Placement, Movement, Integration.

And of course once integrated the fraud becomes more difficult to track.

... But not I think as difficult as the criminals believe that it is as a fair few of them are already doing time for this.

Stardoe · Guru

Many thanks Shaun for that excellent explanation as usual....I'm with Bill....I would hate to have seen a complicated example...lol So does this just relate to mobile phones and computer chips, or any goods? (Forgive stupid question).

Shamus · Forum Moderator & Expert

Hi Pauline,

its anything that the fraudsters can find where there is a variance large enough that they can make a killing on the first company in the chain disappearing.

mobile phones and computer chips are common ones but there are plenty of others.

Its also a common misconception that this is just a UK problem but the reality is that the systems of all of the countries within the EU are being played off against each other.

If one country had zero rate on babies diapers and in another its standard rated you can bet your bottom dollar that there will be a form of carousel fraud going on in that market.

In the Netherlands I think that it was their metal industry that fell victim to it. In France its currently mobile phones. Actually this goes beyond the EU as in Canada it imported used cars (over there it's called flipping rather than carousel fraud).

Basically the whole way that the system currently works is under threat because the fraud is basically easy to run and also easy to hide due to the complexities of international trade so best of all worlds for criminals and a nightmare for governments the world over.

FoxAccountancyServices · Expert

Yes, only to explain why T20 wasn't the right code... so I just wanted to bring it back to the main point.. for people who search this post in time to come. Chill out dude, it was still good info that you provided ;oP

-- Edited by FoxAccountancyServices on Wednesday 24th of July 2013 01:07:09 PM

FoxAccountancyServices · Expert

And so, just to go back to the original point... T20 on Sage and RC on Quickbooks are codes for businesses that sell mobile phones and computer chips. They shouldn't be used for the reverse charge that we have been coming into contact with :)

Shamus · Forum Moderator & Expert

You were the one started talking about Carousel frauds, lol.

Shamus · Forum Moderator & Expert

Using lol at the end of a paragraph means that I was commenting tongue in cheek.

Tut, Mancs. they don't understand us Brummies at all...

FoxAccountancyServices · Expert

Using a sticky out tongue face means I was playing along...

Tut, Brummies, they don't understand their own game...

:OP

Markosta · Member

Hello

can you explain how this reverse charge works

Im filling in online VAT return and still trying to figure it out

A Freight forwarding company based in UK VAT registered

B customer UK company VAT registered

C transport company in France

Customer B gives goods for Freight forwarder A

Freight forwarder A appoints transport company C to deliver goods from UK to France

A invoices B for £1000+VAT

C invoices A for £800 with 0 VAT

Also company A bought Printer for business 200+VAT and want to claim VAT back

what is correct way to fill in online VAT return boxes 1,2,4,6,7

Trying to get this sorted already 2 weeks

How is VAT reversible charges work?

Thanks in advance

-- Edited by Markosta on Monday 27th of July 2015 04:17:44 PM

VinceH · Expert

The printer is easy enough: That's going to be £40 in box 4, and £200 in box 7.

As I understand it (based on HMRC's website) for the French transport company the entries should be: Box 1 and 4, £160, and boxes 6 and 7 £800.

The logic is:

You work out the VAT you would have paid at the prevailing UK rate; so they've charged you £800 without the VAT; the VAT at the UK rate of 20% would be £160. You add that to your outputs tax, and you then add the same amount to your input tax - these cancel one another out, so you pay and claim no VAT.

You put the net amount of the invoice (the actual amount the French company charged) in box 6 and 7 - inputs and outputs. This is stated on the HMRC website, and was questioned above, but I think it is so that the calculations make sense: On a normal return (where there are no corrections/adjustments) box 1 should never be more than 20% of box 6, and box 4 should never be more than 20% of box 7.

So for the two transactions, it's going to be a VAT return that looks like:

Box 1: £360 (the VAT on the sales invoice and the VAT calculated on the French company's invoice)
Box 2: £0 (no EC purchases [of goods])
Box 3: £360 (sum of boxes 1 and 2)
Box 4: £200 (the VAT calculated on the French company's invoice, plus the VAT on the printer)
Box 5: £160 (box 3 less box 4)
Box 6: £1800 (the net value of the sales invoice, plus the net value of the French company's invoice)
Box 7: £1000 (the net value French transport company's invoice, plus the net cost of the printer)
Box 8: £0 (no EC sales)
Box 9: £0 (no EC purchases [of goods])

However, I'd welcome a second opinion on that, because while I'm reasonably sure that's correct, I'm not 100%.

If it was goods, rather than services, the VAT calculated on the French company's invoice would go in box 2 instead of box 1, and the net invoice amount in boxes 7 and 9, rather than 6 and 7.

Markosta · Member

thank you so much

you really helped me

Thank you , thank you, thank you

:)

Box 6: your total sales excluding VAT