UK based VAT registered entities must account for VAT on most services received from abroad using the mechanism known as the Reverse Charge as the ‘general rule’ for cross border service supplies. As HMRC becomes more sophisticated it is challenging VAT registered entities with regards to Reverse Charging.
Examples of these services include:
Examples of services that are not included:
Broadly speaking, you are required to convert these invoices into sterling.
A lot of the services purchased abroad do not give the charity the right to a full recovery of input tax.
As a result, HMRC are visiting or writing to the charity with lists of services to check whether the Reverse Charge has not been completed.
Where the Reverse Charge has not been applied, this has led to assessments which could, in turn, lead to penalties for not completing VAT returns with ’reasonable care’.
Supplies from overseas are often purchased via the charity’s credit card and will be entered onto the accounting system undetected.
As Making Tax Digital becomes further reaching in the next few years, it will be even easier for HMRC to see whether or not these charges have been completed.
1. Does the Reverse Charge only apply to purchases from suppliers based outside the EC?
No: these supplies are all exceptions to the ‘general rule’ and local VAT will be applied to the supplies.
For further information please contact Robert Warne.