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February 28th 2014 / BY: Wisteria

Tax Consultants guide to the VAT Reverse Charge

There is often much confusion about whether or not your business should register for VAT. There is a threshold of £79,000 for taxable turnover which requires a business to register for VAT by law, but many businesses with a taxable turnover below this will still voluntarily register for VAT. Tax Consultants will be able to provide advice on the benefits of being VAT registered or you could alternatively click here. The purpose of this article is to focus more on the reverse charge and the need for tax consultants to assist you with your VAT.

Under the normal circumstances, by being VAT registered, you are required to account/charge VAT on all of your taxable sales (called your output VAT) and on your inputs you will need to obtain invoices with the VAT inclusive amount (input VAT). This all means that in general terms, you will offset your input VAT against the output VAT and eventually have a figure of VAT that you need to pay (or be repaid) to HMRC and declare this figure on your quarterly VAT Returns.

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There are however certain circumstances when the above methodology may not apply. This could be because the company may be operating the Flat Rate Scheme for example. There are some times when a company will be required to operate the reverse charge. This occurs when the UK company’s supplier is situated outside of the UK. In this situation, the UK company would have to account for the VAT due on the services on their behalf (essentially charging themselves input VAT).

The following conditions have to be met if the reverse charge is to apply:

–          Supply of services originates from outside the UK,

–          The place of supply is in the UK,

–          The recipient is UK VAT registered.

If your UK business will have to apply the reverse charge, then it is important to understand how you apply it to your VAT returns. Once the total value of services for the UK company has been calculated, the UK customer is then required to identify which VAT rate applies to which service from exempt supplies, to standard rated. Those supplies that are not liable to UK VAT should be excluded from the VAT calculation. In terms of the output VAT, you would account for VAT at the applicable rates as normal.

Accounting for the reverse charge is a highly complicated area within VAT and it is therefore recommended that you seek specialist advice from chartered accounts or tax consultants. If you think the reverse charge may apply to you or you would like more information about the VAT Reverse Charge and any other VAT Schemes please email info@wisteria.co.uk or call 020 8952 0140.