My client is on the flat rate scheme and runs a computer repair shop. They have purchased computer components (goods) from the EU, as well as business to business (B2B) general rule services, namely specialist IT consultancy, from a VAT registered French company. What are the reporting requirements on the VAT return for these two transactions?
The reporting requirements
When not using a special scheme, the normal method of accounting for VAT on goods bought from a VAT registered supplier in the EU (acquisitions) is to complete Box 2 on the VAT return; the business can also reclaim that as input tax in Box 4 subject to the usual input tax rules on business use and partial exemption.
Businesses on the FRS account for acquisitions by entering the appropriate rate of UK VAT (not their flat rate), on the value of the goods in Box 2, and this VAT is not recoverable. The net value is entered in Box 7 and Box 9. If the goods acquired are zero-rated in the UK then no tax is due.
Where services to which the reverse charge applies are received from suppliers outside the UK, these are accounted for in the same way as for a business on normal accounting. The reverse charge is a simplification measure whereby suppliers avoid the need to register for VAT in the EC country where they supply their services and in the UK applies where:
- The place of supply is the UK;
- The supplier belongs outside of the UK;
- The purchaser belongs in the UK, and
- the supply is not exempt
The notional UK VAT at the appropriate UK VAT rate (again, not at their flat rate) is entered in Box 1 and unlike with acquisitions above, this is recoverable in Box 4. The guidance on whether the net figures should be entered in Box 6 and Box 7 is a little unclear, with Notice 733 saying Boxes 1 and 4 should be completed and Notice 700/12 indicating that Boxes 6 and 7 should also be completed. Not a crucial point, but we would advise that all four boxes are completed.
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This tax Q&A was published in January 2018 – please be aware that the information above may have changed in subsequent months. This note is written for the general interest of our clients and is not a substitute for consulting the relevant legislation or for taking professional advice.
(This content was originally produced by Croner Taxwise Limited and is reproduced with their permission)