VAT - Special Situations under the Standard and Cash Schemes
This guide deals with a number of special VAT situations under the Standard and Cash VAT schemes
This guide addresses the following topics.
- Cash Scheme and Miscellaneous Deposits
- Selling goods and services to customers in the EU
- Selling goods to other parts of the world (exports)
- Buying goods from EU suppliers
- Buying goods from other parts of the world (imports)
- Buying and selling services outside of the UK (Reverse Charge)
- Reverse Charge Procedure
Cash Scheme and Miscellaneous Deposits
The Cash based scheme requires that Output tax be accounted for when the payment is received. Usually a Sales Invoice will represent the VAT document and the process of applying a receipt will place the appropriate VAT amounts in the VAT return (VAT100). Where a user chooses to record a Miscellaneous Deposit directly onto a Sales Ledger account (for say a payment on account from the Customer) and not apply the deposit to a Sales Invoice (perhaps because the Invoice cannot yet be raised) and close the VAT period in this condition; any VAT would not be accounted for and therefore the business is potentially non-compliant.
To allow flexibility as well as the ability to comply, a list of all currently un-applied Miscellaneous Deposits that have been posted to Customer Accounts is available from the VAT menu.
It is recommended that this list be reviewed prior to accepting a VAT Return.
If a user does not wish to do anything, leave the screen and proceed to close the VAT period, if not, the listing allows a user to define the VAT rate that they would wish to apply to any particular deposit as shown below: -
When SUBMIT is clicked a reversing VAT Journal is created for each item. It posts a VAT amount computed from the selected VAT code to a sub account of the VAT Control Account - VAT on ACCOUNT (Cash Scheme). The VAT100 and the VAT transactions Reports will record the appropriate VAT and turnover amounts when the return is accepted for filing; also the initial journals are locked because they are included in a closed VAT filing. Note the balance on the VAT on ACCOUNT (Cash Scheme) will normally be zero as the Journals are reversing.
When in the next or subsequent VAT periods the Miscellaneous Deposit is finally applied, the VAT will be processed as normally but because there is a reversed amount from the Journal the impact will be an adjusted amount If a different VAT rate is applied to the sales invoice or no further impact.
A user may cancel journalising un-applied deposits any time prior to accepting a VAT return, by going back to the unapplied listing, where the VAT codes will by default, be reset to Ignore Item and clicking SUBMIT again.
Selling goods and services to customers in the EU
Provided your EU customer is VAT registered and you have their VAT number and you indicate on the customer maintenance screen that it has been validated you are usually able to invoice with a zero rated VAT rate; If not, VAT at the appropriate rate must be charged. A consequence of the Customer VAT number validation is that the system will default to a zero rate, but the user must satisfy themselves that this is appropriate. If you are unsure you are strongly recommended to take professional advice.
Sales invoices will have text added for compliance purposes as follows. If the sales item is set as Goods and zero rated then 'Includes zero rated intra-EC supply' is shown. For other zero rated supplies the text is 'may be subject to reverse charge in the country of receipt'. If a VAT rate of exempt is selected then the text is 'Includes exempt supply'.
In the case of an invoice to an EU customer designated in Euro (or other non sterling currency) the invoice will display any VAT amount in both sterling and currency. Additionally where a business is using the cash based scheme the VAT will be recorded on the VAT 100 return when the invoice is created, not when payment is received.
Part of the reporting procedure to HMRC, requires that a quarterly (or monthly) EC sales list be submitted. Provided you have set up the details of VAT registration number and country of your EU customers, a list can be prepared via the VAT menu. Check to ensure that the country prefix code is set both for the entity (VAT configuration) and the Customer (Customer Maintenance).
HMRC - VAT EC Sales List (V101)
Make any adjustments and click SUBMIT to prepare the report. The report can be accessed from the VAT menu.
HMRC - Reports - View Saved EC Sales List Returns
Selling goods to other parts of the world (exports)
If you export goods to a customer outside the European Union, your supply is normally zero-rated, provided certain conditions are met. If you are uncertain consult with your advisor.
Buying goods from EU suppliers
If you are VAT registered in the UK and receive goods (known as acquisitions) from another EU member state supplied from a VAT registered business in that state, you must account for VAT in the UK on acquisition of the goods as output tax. In addition and subject to the normal rules for deduction of input tax, the same VAT amount is treated as input tax. The VAT rate applicable will be that which would apply to a UK supply of identical goods. So for example no tax will therefore be due on the acquisition of goods that are currently zero-rated in the UK.
To record VAT on an EU Acquisition: -
- Enter a purchase transaction and fill out data as required.
- Enter in the net amount box the value of the acquisition
- Select EU Acquisition for the VAT rate.
- A VAT amount based upon the standard rate will be automatically calculated, if this in not the rate that should apply calculate the correct VAT amount and overwrite with that amount.
- The system will record both the output and input side impacts.
Note that if you are using the cash based scheme, the transaction will be recorded immediately (not when the bill is paid) consistent with Para. 4.3 of the notice 731 Cash Accounting.
Buying goods from other parts of the world (imports)
If you import goods from outside the EU, they must be cleared through HMRC. At the point of levying customs duty, Import VAT is charged. The VAT rate applied will be that which would apply to a UK supply of identical goods. Usually you will receive an Invoice from your supplier that will not show any VAT. Your shipper will usually recharge you directly with the appropriate VAT. If however you have arranged with HMRC a deferment, they will collect the Import VAT from you and send a C79 certificate. The C79 authorises you to record the Import VAT.
Note that under section 4.3 of VAT Notice 731 (Cash Accounting) the Cash accounting scheme must not be used for imports. To comply with this notice we recommend cash accounting users record these transactions using a ?cash? type transaction such as a cheque, card or online payment to ensure VAT liability is recorded immediately, do not record using a Bill type transaction. You will have to enter the information as two transactions.
The first is to record the value of the import. Input the purchase transaction (See note above) and use zero rate VAT code. Secondly record the Import VAT recharged from the shipper or the C79 payment. Enter the transaction using any appropriate payment transaction, such as cheque, card or online transfer, selecting the account as the VAT Control. This is a potentially complex area and so we strongly advise you consult with your advisor.
Buying and selling services outside of the UK (Reverse Charge)
Supply and receipt of services inside the UK are dealt with as described above in recording of VAT. If however you supply or receive services from either EU member states or non-EU member states there are complex rules dealing with where the supply of the service is actually performed. The VAT accounting necessary will be dependant on the type of service it is. We strongly recommend you take advice from HMRC or your advisor. The VAT codes will allow you to account for VAT in the correct manner once the applicable rules have been confirmed.
Reverse Charge Procedure
Normally, if you are a VAT registered business in the UK and have received a service from a VAT registered supplier in a EU member state, the receiver of the service is the person who must account, to the tax authorities, for any VAT due on the supply. This is known as reverse charge. The system provides a procedure for dealing with this. Another common situation where this can apply is the purchase of say software from the USA.
We strongly recommend you take advice from HMRC or your advisor to ensure that this is the correct VAT accounting required.
Recent announcements from HMRC suggest that for certain goods (Mobile Phones, Computer Chips, Electronic Storage medium, Hand held computers and GPS systems etc) coming from a European VAT registered supplier must be treated under the Reverse Charge Procedure. Simply follow the procedure described below.
The required impact is to add to the VAT control account an amount of output tax (as if a sale) calculated on the full value of the supply received (or in the case of software the value paid), at the same time add (subject to the normal rules for deduction of input tax) the same amount of VAT as input tax to the VAT control account. The impact on VAT is zero; however it does affect the VAT100 return.
The system provides a specific feature to deal with any transaction impacted by reverse charge.
- Enter the transaction normally and select a VAT rate that would apply if the purchase had taken place from a UK supplier.
- Then in the Analysis Tab simply check the box Reverse Charge VAT in the analysis tab. The appropriate entries are made to the VAT100 report and any VAT transaction reports.
If the Transaction is subsequently viewed or edited, the displayed VAT rate will show ?Out of Scope?. If you wish to amend the figures make sure you again use a relevant VAT rate and ensure the Reverse Charge VAT box remains checked. We repeat It is strongly recommended you take advice from HMRC or your advisor to ensure that this is the correct VAT accounting required.