Reverse charge is when the supplier delivers tax free, reversing the obligation to pay tax to the authorities to the buyer. As a consequence the buyer has to calculate and report the total amount of reversed taxes (VAT).
If one has to to reverse charge accounting the Tax(Vat) has to be calculated/registered (because now the buyer has to report VAT to authorities) , but not added to the total of the invoice (because the amount payed to supplier is without tax (VAT). Thus: Calculate taxes/charges for invoice but do not add this to Total Amount to be paid.
How to do this???
I used to do this by entering the VAT twice positive and negative, resulting in a total tax of Zero.
However, this does not result in a tax liability, tax I can clear with a Payment voucher. If I debit Vat Account with a JV with a bank payment to revenue authority, I have debited the Vat twice!! (one time when I make the sales invoice, one time making the actual payment to government)
Since reverse tax is common in many countries, how to solve this!!
Addendum: just did small test where i set the tax as: Consider Tax or Charge for
Valuation. Tax indeed is not added to the total amount of invoice, but if i run the ledger the VAT is also not recorded in the account head, thus does not solve the isse.
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Are you talking about your purchases or sales when discussing the reverse charge?
I am talking about purchasing. Went to the whole process again and believe i set it correctly 5 years ago.
Jus not a star in accounting
@becht_robert Ok I thought you were. In that case then I’m a little confused as the accounting is correct. You debit and credit the vat account assuming you can reclaim all the VAT on the input tax in your home country. So that only leaves your query over a payment. What payment is this that isn’t being handled?
I mean the payment to the government.
But believe now I was wrong tracked in my thinking and what i did seems to be correct
Purchase from other EU country
2016-05-03 BTW21 - DLI 17.28 0 Purchase Invoice BILL16-00029 Pets Best
2016-05-03 BTW21_verlegd - DLI 0 17.28 Purchase Invoice BILL16-00029 Pets Best
2016-05-03 BTW6 - DLI 52.1 0 Purchase Invoice BILL16-00029 Pets Best
2016-05-03 BTW6_verlegd - DLI 0 52.1 Purchase Invoice BILL16-00029 Pets Best
2016-05-03 Creditors - DLI 0 953.85 Purchase Invoice BILL16-00029 Inkoop-Duitsland - DLI
2016-05-03 Inkoop-Duitsland - DLI 950.85 0 Purchase Invoice BILL16-00029 Pets Best
Than every 3 month a JV where Bank account is credited and “verlegd” (reverse charge VAT) is debitted,
leavingme with the VAT payedto governement under the normal vat accounts
Yes as the net effect on tax is nil then the net effect on the vat balance to be paid to the Tax Authority is also nil however I presume as in the UK you still need to show the debit and credit in the VAT return itself so whilst the net effect is nil it still needs to be reported.
Not really I hope…
If I buy in Nl than the “normal” VAT account is debited. Which is correct since I pay the VAt to supplier.
Now if I buy from UK or D (or any other EU country) i debit the Normal VAT account and credit the reverse charge account.
Net zero. Which is correct since I have not yet paid this VAt.
Now at the end of each quarter I report the different revenues and VAT amounts to tax authority and pay the (cumulative/total) under the reverse charge account head to the tax office. So i credit the bank account and debit the reverse tax account. After this the cr and dr sides of the reverse tax account are equal, so net zero, but the normal tax account is not affected, and reporst now the sum of prepaid tax for normal purchases (from NL supplier) and for the reverse charge purchases from EU supplier. Which seems to be correct. I have no accounting background so tell me if i go wrong
Summary;
Reverse tax purchase of E100 @ 6%
VAT Dr 6
Reverse Charge VAT Cr 6
JV
Cr Bank account 6
Dr Reverse Charge 6
So now: Reverse Charge VAT dr 6 and cr 6 and VAT Dr 6.
This seems to be correct since the reverse charge account are neutral (Dr & Cr the same) and the prepaid VAT account has Dr 6. The same as if I would have bought the item from an NL supplier.
@becht_robert Unless Holland is different than the UK you do not pay the Tax Authority anything as long as you can ordinarily in your home country reclaim that input (purchase) tax. The reason is that the reverse charge is cancelled out by the normal input tax reclaim leaving a balance of nil to be paid.
Here’s the UK rules for completing the VAT return:
In your example the 6 would go in boxes 2 (acquisitions) and in box 4 which is your reclaim on VAT paid on purchases and crucially also acquisitions).
Box 3 is the total of box 1 and box 2 so in your example. It’s €6.
Box 4 is also €6 as you can reclaim your acquisitions like any other purchase
VAT due is box 4-3. €6 - €6 = 0 - nothing to pay.
Now if the product your are purchasing can’t reclaim VAT at 100% the difference between what can be reclaimed and what you notionally paid in box 2 would be payable to your Tax Authority.
I don’t know the rules are in Holland so I can’t offer any advice on whether any of that applies to you or not however on the face of it should because Dutch law should be based on EC VAT law which commonise rules across the EU.
@eamon Dont think there are principal differences among VAT is EU countries. In NL i do have to pay the VAT to tax authority of zero VAT purchases from other EU countries. Of course finally one pays the difference between paid VAT and received VAT. I reported the "theoretical VAT"from my purchases in germany to tax office, and used the rules of valid in NL (we do not have to pay VAT if the difference between input and output tax is less than E1356/yr).Had a visit the the tax officer in March, and now have to pay the VAT over all purchases over the last four years in Germany