Introduction

As per HMRC guidelines for Reverse Charge VAT in the UK, if VAT codes are configured as detailed below, the system will:

• Calculate the amount of VAT for all purchase transactions where Reverse Charges / PVA is flagged.
• Calculate the VAT amount from the gross amount at the standard rate for the company. 

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

See:

How does the System Facilitate VAT Management (U.K. & Ireland)?‍ 

Setting up Reverse Charge Tax Codes 

To set up Reverse Charge Tax Codes:

1. Go to Setup > Codes Maintenance > Tax Codes.
2. Add a Tax Code or edit‍ an existing code in the list.
   • Tick Reverse Charge / PVA.
   • Select Services.
     
     
      
3. Click Save. Reverse charges will be calculated at the standard rate for the company. 

To check the standard Reverse Charge rate for a company:

1. Go to Setup > Codes Maintenance > Tax Codes.
2. In the Std column, set the filter to Checked. In the example below, the standard rate is 20%:
   
   

See:

  How do I use Code Maintenance to Control the Behaviour of the System?‍ 

Understanding Reverse Charges on Purchase of Services from the EU and ROW

Here is an example of a VAT Return containing a single Purchase Invoice of £200, carrying a VAT code tagged as Reverse Charge PVA and Services. The rate is 0%, with the company having a standard VAT rate of 20%. 

The value of the VAT on the Purchase invoice is 0.00.
 

Total VAT on Sales And other Outputs / Total Vat Due (boxes 1 and 3)

The value of VAT on Reverse Charge PVA Purchases calculated above will be added to boxes 1 and 3. The Total VAT due (box 3), in this case, is £40.

Reverse Charge PVA Purchases are taxed at ZERO. When you count them in the VAT Return, the system calculates the value of the VAT as you "SHOULD" have paid it (i.e., at the standard rate) and adds it to Purchases and Sales. As it is added to Purchases and Sales, the actual is ZERO, but the record remains.
 

 VAT on Purchases & Other Inputs (box 4)

The system calculates the VAT due on EU Purchases of Services at the standard rate for the company. In this case, 20% of £200 is £40.
  

This is added to the total in VAT on Purchases and Other Inputs (box 4) of the UK VAT return. 

 Net VAT for payment/reclaim (box 5)

The net value of the Reverse Charge / PVA is Sales VAT minus Purchase VAT (Total VAT due), making it 0.00.

Total Sales/Outputs (excl. VAT) (box 6)

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.

 Total Purch/Inputs (excl. VAT (box 7)

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