Question

Reverse charge VAT for EC services when partially exempt

Forum|Forum|3 years ago
September 20, 2022
10 replies
13 views

Hi all

I'm trying to account for this: in QBO

https://www.gov.uk/vat-on-services-from-abroad

We're partially exempt as we're grant funded but can claim the VAT back from the funder (rather than HMRC) as an incurred expense (this is what we do when we're charge UK VAT) so what I need to do is

1) Add in the 20% VAT charge of these invoices to box 1 of my VAT return

2) "Charge" this VAT amount to the relevant expense nominal code as we can't claim it back via HMRC but can claim it back from our funder.

I've just confirmed with our accountant that this is what I need to do so the process above is not in question.

I just need to know HOW to do it in quickbooks online. Ideally I'd like to be able to adjust this via a journal but am struggling to do so that it hits Box 1 of my VAT return.

Thank you!

QuickBooks Online

Adrian_A

Level 8

Hi Bernice Cole,

I'm here to walk you through the steps in recording the VAT from the funder.

First, you can add a service item to account for the 20% VAT. Then, add it as a line item on the expense transaction. Here's how:

From the + New tab, select either Bill or Expense.
Select the name of the funder or add them as your Payee.
Select the service item you created earlier.
Enter the AMOUNT.
Select a VAT category.
Click Save and close.

You can also visit this page or more on the reverse charge procedure: GOV.UK.

I'd appreciate if you can update me on how it goes. I'm always here to help.

B

Bernice Cole Author

Thanks Adrian but this doesn't do what I need it to.

The link you sent is for domestic reverse charge VAT which is not what I'm talking about.

The original bill is from a Dutch supplier and doesn't have VAT payable on it BUT reverse charge VAT does apply. I've spoken with an accountant and they have confirmed I need to

1) add 20% of the bill amount to box 1 of the VAT report to pay to HMRC. The supplier doesn't get anything.

2) As we can claim the above back from the funder (not the same organisation as the Dutch supplier), I also need this to be recorded as an expense.

I can set up a journal but can only post to VAT control, not box 1. This is what I need to do on QB.

Can you let me know how I can do this.

Thank you!

B

Bernice Cole Author

@Bernice Cole wrote:

Essentially this is what would happen if the supplier had charged regular VAT in the first place. HMRC would get their cut, our expense line would go up by 20% (as the whole amount is recorded as exempt from VAT) and we'd claim the full amount back from our funder. This is what I need to replicate here.

Thanks
Bernice

Yes - that's what I was going for but wasn't aware you wouldn't generally reclaim any VAT on UK supplies.

In that case - ignore the post, it's completely the wrong way round!

In order to pay HMRC VAT on a purchase (usually you're reclaiming as an input) the VAT shown on the QBO Bill would need to be negative. I'm not sure that QBO will allow that.

But, maybe try this...

It looks a little convoluted but I think it does what you're asking for.

Lines 1 & 2 create the negative VAT (to pay HMRC via VAT100).

Line 3 is what you'd usually enter for a UK supplier.

The balance to pay the supplier is £100 (rather than £120).

HMRC receives £20 - although it's by reducing box 4 rather than increasing box 1.

The overall effect on the expense account is £120 (as it would be with a UK supplier) which is reclaimed from the funder.

Hope this helps.

Thanks Paul - this does look very convoluted and I have multiple transactions I need to adjust in this way so I'm not sure of the practicalities of this. The tax expert has suggested a journal would be an appropriate way to account for this in QB. Is there no way of doing this in QB?

Alternatively, I have found this which would seem to do what I need as it both adjusts box 1 and creates and expense that I can charge back to the funder: https://quickbooks.intuit.com/learn-support/en-uk/help-article/report-management/create-delete-vat-adjustment/L4jcr3uMC_GB_en_GB?uid=l8lsai5k

My only question is the amount I put in the adjustment, the full adjusted amount (so the original amount plus the vat needed to be recharged) OR just the recharged VAT amount.

Thanks!

Bernice

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