VAT Return Box 6+7 for EC sales outside VAT

by **kk31** on Wed Mar 02, 2011 3:35 pm

Hi,
I have a question arising from services supplied to another EU state. The VAT is being accounted for by the customer under 'reverse charge'.

Since these supplies are outside the scope of UK VAT they had not been included on previous VAT returns. I now believe this to be in error, and that these sales should have been entered in box 6, (exclusive of VAT).
Purchases relating to these services have also not been included on the return since the VAT cannot been reclaimed, again I suspect this is wrong and they should have been in box 7, (exclusive of VAT).

Since this doesn't change the VAT liability it seems, under the correction rules, we can simply update this on the next return.

Does this sound right?

Thanks

by **Generix** on Wed Mar 02, 2011 4:03 pm

kk31 wrote:Hi,
I have a question arising from services supplied to another EU state. The VAT is being accounted for by the customer under 'reverse charge'.

Since these supplies are outside the scope of UK VAT they had not been included on previous VAT returns. I now believe this to be in error, and that these sales should have been entered in box 6, (exclusive of VAT).
Purchases relating to these services have also not been included on the return since the VAT cannot been reclaimed, again I suspect this is wrong and they should have been in box 7, (exclusive of VAT).

Since this doesn't change the VAT liability it seems, under the correction rules, we can simply update this on the next return.

Does this sound right?

Thanks

The sales should be entered in box 6 correct.
The input VAT is likely recoverable (box 4), and even if it wasn't you should (probably) be recording the net purchase on the VAT return on box 7.

Are the services exempt financial services?

by **kk31** on Wed Mar 02, 2011 4:27 pm

Thanks for the answer.

This doesn't relate to financial services. The services supplied are software licensing, upgrades and on-site training.

We have previously been advised that the purchases VAT was not recoverable as it solely related to sales outside scope of VAT, so it would be great if it is recoverable.

by **Generix** on Wed Mar 02, 2011 4:53 pm

kk31 wrote:Thanks for the answer.

This doesn't relate to financial services. The services supplied are software licensing, upgrades and on-site training.

We have previously been advised that the purchases VAT was not recoverable as it solely related to sales outside scope of VAT, so it would be great if it is recoverable.

That's the second time I've heard that this week!!! If I didn't know better I'd start second guessing myself!

Did HMRC tell you this?

by **kk31** on Wed Mar 02, 2011 5:21 pm

No, our accountant when we started trading.

I have just looked at the rules and you seem to be right.
Another round of mistakes to correct... at least these seem to be in our favour.

Thanks

by **Generix** on Wed Mar 02, 2011 6:00 pm

kk31 wrote:No, our accountant when we started trading.

I have just looked at the rules and you seem to be right.
Another round of mistakes to correct... at least these seem to be in our favour.

Thanks

Not least because VAT has so many different terms which have differing meanings within the context of EU and UK law accountants (which don't have a 'VAT specialist') tend to make these mistakes, at least thats my experience.

I'm sure it's not of all the smaller accountants, but at least a lot of them.

This forum is one of the best (in my opinion) for free high level VAT (and obviously other tax) advice, as the people who post here tend to be very good in their respective fields.

by **kk31** on Thu Mar 03, 2011 3:17 pm

Having reviewed our position based on the fact we can reclaim the VAT on the purchases I have another question (possibly should be in another part of forum)

The purchases give rise to a VAT reclaim of approx £1500 over the last 18 months. Correcting this would have knock effect on our balance sheet and a possible small CT liability.
We had included purchases inclusive of VAT where we were informed VAT couldnt be reclaimed on the last years accounts.

Since we have submitted the accounts and any VAT reclaim would take place on the next return I assume I should:

Apply these purchases to our next quarterly return.
Make the appropriate adjustments in the next years end of year accounts.

Does this sound sensible? Or should we be applying some correction to the previous years accounts?

Thanks

by **Generix** on Thu Mar 03, 2011 5:05 pm

Presumably all you are doing is moving the previously blocked cost from the P/L to your VAT account , I would normally just treat this as an adjustment in the period the adjustment is made (i.e. the current one) based on the journal from the P/L to the VAT account.

Not sure thats technically correct from a CT or Accounting point of view, but its what I've always done.