017921: Add service flag to SP ledger for reverse charge vat purposes

1.      Overview

VAT on services received from overseas suppliers can be considered as a reverse charge and reported on differently to HMRC. We recommend seeking advice / guidance from HMRC if this is applicable to your situation.

2.      Requirements

This facility is only applicable to non-UK suppliers, which have a Tax Reference (Tax Ref) specified against their Supplier record in Khaos Control. If this is not the case the additional columns will not be accessible and you will not be able to post a Reverse Charge SP ledger.

3.      Specification

A new column called Service RC has been added to the grid in the [ Accounts | S/P Ledger ] screen. When active, the name of the EC Tax column is changed to EC/RC Tax as this column then serves two purposes.

There are 3 scenarios:

1. EC Vat applies: the purchase invoice does not have vat, but is for an EC Supplier with a VAT number [existing behaviour]
2. EC Vat does not apply: its an EC Supplier but its being posted with UK Vat on it. [existing behaviour]
3. RC Vat applies: the purchase invoice is for Services originating outside the UK, so reverse charge rules apply.
   
   

When the RC VAT applies the system will post two LEDGER_TAXREGISTER entries for the same ledger_id, one as a PINV and one as an SINV, cancelling out the VAT.

From HMRC 5.2 How the reverse charge works "You simply credit your VAT account with an amount of output tax, calculated on the full value of the supply you've received, and at the same time debit your VAT account with the input tax to which you are entitled, in accordance with the normal rules." The partial exemption implications for reverse charge services are explained in HMRC Notice 706: partial exemption.

The postings are included in the relevant boxes of the VAT Return:

• Box 1: amount of output tax (VAT due on sales)
• Box 4: amount of input tax (VAT reclaimed on purchases)
• Box 6: full value of the supply (total value of sales)
• Box 7: full value of the supply (total value of purchases)

4.      Usage

After applying the above Configuration, typical steps for usage would include:

1. Create a new SPLedger entry, see How To: Enter a single line SP Ledger entry.
2. If the posting is a service received from an overseas supplier:
   1. Tick the "Service RC" checkbox.
   2. Enter the amount of Tax in the "EC/RX Tax" column.
      Note: the VAT rate must be Exempt or Zero.
3. Complete the SPLedger entry as normal. This results in a matching pair of Pinv and Sinv items for tax reporting purposes.

5.      See Also

• Accounts overview