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VAT Reverse Charge, how does it work?

Under VAT reverse charge, if you are customer, you need to credit your VAT account with an amount of output tax, calculated on the full value of the supply that you have received, and at the same time debit your VAT account with the input tax to which you are entitled, in accordance with the normal rules.

You then include in the relevant boxes of your VAT Return the:

For example, you receive a reverse charge invoice from a company in France for €10,000.  You will pay the supplier €10,000. 

When you start preparing your VAT return, you need to manually calculate VAT on the €10,000 at the applicable rate, which is currently 20% in the UK, resulting in VAT of €2,000.

The resulting entries would be:

You then include in the relevant boxes of your VAT Return the following converted to GBP:

As the invoice value and the notional VAT are reported both under the sales and purchases sections of the same VAT return there is no VAT liability or recovery resulting from the transaction.

If you are the supplier of services from the UK to an EU customer, the invoices are raised without VAT and the total included in box 6 (total value of sales).

Modern accounting software such as Xero and QuickBooks, will handle this automatically and also take care of applying the exchange rate conversion for the VAT return.

If you need to manually calculate the exchange rate, the applicable rates are here.

Read our blog post on VAT On B2B Services From the UK With The EU Post Brexit here –https://cooperfaure.designmindshost.com/vat-on-services-uk-to-eu-post-brexit/