Below there is sample break down the amounts which should be enter for each relevant box on VAT return when using theFlat Rate Scheme (FRS), 11%, with a turnover of £1000 (excluding 20% VAT) and a purchase service from Ireland for £100 with the20% reverse charge (20% RC SG).
In summary, the first amount reflects the amount that I believe should be correct, and the second amount shows the amount that QuickBooks includes:
Box 1: Should be £152 (11%on£1200=£132+ reverse charge VAT here, which is £20)
QB: £132 (QB shows just VAT due on sale, without VAT on purchase from Ireland)
Box 2: £0 £0
Box 3: £152 £132 (QB)
Box 4: £20 £20
Box 5: £132 £112 (QB shows under calculation of VAT due)
Box 6: £1200 £1,300 (QB shows gross sale £1200 + £100 Net purchase from Ireland)
Box 7: £100 £0 (QB doesn’t show purchase from Ireland/EU)
Box 8: £0 £0
Box 9: £0 £0
I would be grateful if you could check my calculation if I’m right and if so please check your VAT returns and confirm whether you also have this calculation incorrect. I have reported this error to QuickBooks, but at this moment they claim that everything is correct, and they have not received any issue on this matter. The case is still open, and I am waiting for their further checks.
To summarise, currently the QuickBooks calculates FRS VAT as percentage on gross sales only, without considering purchases of services from Ireland and the EU. However, the QB then reclaims in Box 4 all (!) VAT on purchases from Ireland/EU. results in an under-calculation of the VAT owed to HMRC.
In my opinion, QuickBooks must necessarily fix this error so, on Flat Rate Scheme, the VAT due for purchases of services from outside the UK (Code 20% RC SG) is additionally included in Box 1 , and the total value of net purchases of services from outside the UK should be removed from Box 6 and should appear in Box 7.
Am I right?
Below, I show the guidance from HMRC explaining how such special circumstances should be recorded:
6.4 Special circumstances: If your business purchases services from outside the UK to which the reverse charge applies then these supplies should be dealt with outside of the Flat Rate Scheme. Exclude them from your flat rate turnover but record them in boxes 1 and 4 of your VAT return, as you would under normal accounting. For more information about reverse charges, read VAT guide (VAT Notice 700).
Many thanks,
Dorota
