Reverse Charge VAT Accounting

To fight problems with MTIC fraud, HM Revenue & Customs has introduced changes to VAT accounting rules ('reverse charge'), which apply to businesses trading in certain goods. This law was introduced in 2007. For more detailed information on the changes and the time-frame for implementation, please refer to the HM Revenue & Custom's web pages at www.customs.hmrc.gov.uk.

What is reverse charge VAT accounting?

Reverse charge are new VAT accounting rules whereby the buyer, instead of the seller, is liable to pay VAT on a sale. The reverse charge applies to sales within the UK where specified goods are sold to/purchased by a VAT-registered business for business purposes or to intra-EU purchases.

The invoice for such sales must specify that reverse charge has been applied. Sellers will also still need to submit a reverse charge sales list to HMRC (similar to EC Sales Lists), listing customer and transaction details where the reverse charge has been applied.

Contact your accountant or HMRC's web pages for information on which goods are affected, exemptions and when the changes will be implemented.

Reverse charge accounting in the program

Mamut Business Software supports the new rules and has added new VAT codes to the program, which correspond to the new reverse charge regulations. You can find the VAT codes by going to View - Settings - Accounting - Accounting Settings - Maintenance of VAT rates. The relevant VAT codes for reverse charge accounting are:

34 - Purchase, reverse charge items, UK

35 - Sales, reverse charge items, UK

Note! You need to ensure that you are choosing the correct VAT codes when invoicing and posting transactions affected by the reverse charge rules.

The VAT reports/tax declarations in the program support declarations according to the reverse charge rules, given that you have used the correct VAT codes in your books.

The default Chart of Accounts now contains two new accounts for allocating reverse charge transactions:

2203 Control Account Reverse charge back 1 (Debit)

2204 Control Account Reverse charge back 2 (Credit)

In the Report module you will find the following new report amongst the Accounting reports:

RCSL declarations