Compliance

VAT-registered businesses must report transactions where the reverse charge applies to avoid compliance issues. If you are 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 below a certain value follow special rules. 

Post-Brexit, distance sales from the EU to UK consumers are subject to import VAT. Goods under £135 are taxed at the point of sale with the seller responsible for VAT collection.

See: HMRC guidelines for Reverse Charge VAT in the UK

Reverse Charge for International Purchases 

For Purchases: When purchasing services from the EU (or any non-UK supplier), 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. Services in NI follow UK 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 for goods transactions if your business is registered in Northern Ireland and submits VAT Returns to HMRC. NI-EU services follow UK rules.
• Check PVA if dealing with imported goods only. This uses the rate set in the header. Services use the reverse charge mechanism instead.
• Check Reverse Charge and enter a Rate. 

Completing the VAT Return

On the UK VAT Return, the reverse charge element for services is included in boxes 1, 4, and 7. For goods using PVA, the import VAT is recorded in boxes 1 and 4, with the net value in box 7.

See:

Managing VAT (UK & Ireland)‍ 

Using Codes Maintenance 

Purchase Transaction Example

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

In the VAT Return, self-account for VAT at the applicable rate. This means the VAT is calculated as if you should have paid it (e.g., at the standard rate) and entered in box 1 (VAT on Sales) and box 4 (VAT on Purchases). The effect may be net zero if you can fully reclaim the VAT.

Here, the system calculates VAT on EU purchases of services using the applicable UK VAT rate under the reverse charge mechanism. In this case, at 20%, the VAT is £40, which is added to box 4 and also reported in box 1 to comply with reverse charge rules.

Box 3 is the total of boxes 1 and 2. Since box 2 is not used for services under reverse charge, box 3 equals £40 (the amount in box 1).

The VAT Summary Report:

Under the reverse charge or PVA, the net VAT payable may be zero (as in this case) if you can fully reclaim the VAT self-accounted on purchases.

The VAT Summary Report:

Box 6 in the UK VAT Return ("Total value of sales and other outputs excluding VAT") should include the total value of all sales and other outputs (excluding VAT) made during the VAT period. This box represents your net sales:

What TO include in Box 6:

• If you are the supplier making a reverse charge sale (either internationally or under the domestic reverse charge), include the net sale value in box 6 (as in example below).
• All taxable supplies of goods and services (both standard-rated, reduced-rated, and zero-rated).
• Exports of goods to customers outside the UK (including the EU and non-EU countries).
• Supplies of goods to the EU are treated as exports (zero-rated) post-Brexit. Supplies of services to VAT-registered EU businesses generally follow the place of supply rules for B2B services.
•  Any other outputs, including certain deemed supplies (e.g., goods taken for personal use).

What NOT to include in Box 6:

• If you are the buyer, reverse charge purchases are not included in box 6.
• VAT itself (as this box only records net sales).
• Income that is exempt from VAT (e.g., certain financial services or rental income on residential properties).
• Supplies that are outside the scope of VAT (e.g., grants, insurance payments, wages, or donations).
• Sales of capital assets (these go in Box 6 only if VAT is charged on them).

Net Sale Value of Sales carrying Reverse Charges included in Box 6:

The VAT Summary Report:

For both PVA goods purchases and reverse charge services purchases, the net purchase value is included in box 7.

The VAT Summary Report: