Finances   30.4.2019

What is Reverse Charge VAT?

Are you familiar with reverse charge VAT? If you’re not, you don’t have to worry. We’re here to ensure that by the time you’re done reading this article you’ll be in a better position to approach the reverse charge mechanism.

reverse charge vat

The reverse charge VAT applies to all the services offered to UK-based companies by foreign suppliers. (© pixabay.de)

When it comes to VAT compliance, the reverse charge VAT is most times overlooked. For a long time, it has been a part of VAT accountability; however, most people fail to recognize it.

Most times, when the business owner gives an invoice; the value added tax is always accounted for. The client is required to pay the whole amount, including the VAT. This comes down to you as a provider as you’re not required to keep such invoices but instead, you ought to file them to the HMRC. Now, this is where the reverse charge mechanism comes in handy in the sense that the business owner is excluded from the whole paying HMRC the tax and instead the beneficiary assumes that role. What a meaningful change reverse charge mechanism has to offer! We’re yet to find out.

Initially, the reverse charge process was being used whenever someone in the UK would receive services from an overseas supplier. For instance; if your company is registered under the UK value added tax service, and for some reason, you do business which someone from another country, you were required to account for the reverse charge VAT. At the moment, the VAT reverse is now growing an expanding to tap the domestic market involving phones, fuel and even laptop chips. All this is purposeful to counter the widespread missing trader fraud prevalence in the mentioned sectors. Nevertheless, the VAT reverse for foreign services was created to come up with a fair ground for the businesses in the UK that are not able to reclaim all their VAT’s.

What Are Some of the Aims of Reverse Charge VAT?

The goal is to make simple the VAT payments and by effect reduce the related bureaucratic expenses. This is also to help get rid of some of the corporate violations like tax fraud and by so doing control and prevent the “missing trader frauds” – this is a situation whereby shipments that go through the border and usually are tax-free are abused by beneficiaries to evade paying tax. Billions of money are lost through such fraudulent border actions.

Typically, cases of missing trader frauds despite their VATs not being settled by the suppliers; they are usually taken care of by the beneficiaries in the form of input taxes. This is where the reverse charge mechanism comes in handy to help control such occurrences by having the input tax and VAT all under one docket. For receivers to get refunds in forms of input tax from the HMRC, they’re required to include details of the VAT in the invoice. This effective because the reverse charge VAT is less likely to experience cases of fraud and therefore advisable that many businesses should adopt the same.

When is it Used and Who Does It Apply to?

The reverse charge VAT applies to all the services offered to UK-based companies by foreign suppliers. Of note, this mechanism is only applicable to a beneficiary who’s either an entrepreneur or to corporate entities. It is crucial always to inquire about the type of transactions the mechanism is designed for. The HMRC takes into account and groups the products and services under this mechanism. Let’s say all the shipments across the border that fall under the European Union are all considered under the charge sales list with more attention to;

  • Hand gadgets
  • Wholesale gas
  • Telecom devices and tools
  • Electric energy
  • Laptop chips, and many others

Despite the reverse charge VAT applying across the European Union states, some charge regulations tend to differ depending on the country’s state. For instance, some deliveries from certain member countries can be excluded from the fiscal process.

Get You a VAT identification number and start benefiting from the reverse charge VAT whenever you take part in cross-border transactions.

What is the Reverse Charge Sales List and How Does It Work?

Whenever you supply computer chips and mobile phones, the Reverse Charge Sales List (RCSL) applies. Once the RCSL has been made, the HMRC should be notified and be frequently submitting your data using the RSCL system. This information can also be keyed in via online VAT, but then your software should be in a position export the required data.

The HMRC should be notified within thirty days with details of when the first RCSL was made with names and contacts. The same also applies to when you’ll stop using the service and when you’ll again restart. Failure to meet this, you’ll be subject to day-based penalties.

The RCSL service works through constant notifications that will appear whenever you access your VAT online service. What you need to do is first register with the government. The system is designed objectively with windows to the various options you might look to explore. The whole process is electronic.

The RCSLs are submitted monthly, quarterly, annually and other non-standard periods together with the VAT returns. The dates are the same as the VAT return.

The information you’re required to submit is:

  • Customer’s UK VAT registration number
  • The total monthly net value of the reverse charge sales

The information you provide will be one entry per customer not forgetting your details and contacts. The data can be submitted online or uploaded in the form of comma separated values. In case you’re having any troubles, reach out to your software provider for clarifications. The amount declared can be rounded off or truncated to the nearest pound, both negative and zero amounts are welcome. Mistakes can be corrected by giving the newly amended submission with the corrections.

At the moment, there is an increased used of the reverse charge VAT mechanism. With the prevention of missing trader frauds, most clients are now greatly benefiting from the service. You might be next. Register now and get you the improved and better HRMC services.

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