VAT with the Reverse Charge
Normally VAT is applied to the seller of the goods. Reverse Charge is the term used to indicate that the VAT tax is applied to the buyer.
The Reverse Charge is used mainly when buying goods or services abroad and that have not been taxed at customs. In these cases, the exporting seller is exempted from VAT, while the importing buyer is taxed at the local rate and can possibly deduct it. In addition, there are other cases of purchases abroad subject to the Reverse Charge and each country, in its tax legislation, provides for different situations. When registering VAT with the Reverse Charge:
- The transaction must be included so that it will result as VAT due.
- If the VAT is also deductible, the deductible part of VAT must also be recorded.
The possibility of recording the transaction subject to the Reverse Charge, tax liability and VAT recovery on one single row, is available for the Banana Accounting Plus.
Reverse Charge with inclusion only
If you have to include the purchase of goods or services, but do not have the possibility to deduct VAT:
- Indicate the VAT code due to the appropriate case in the transaction.
The liability with the Reverse Charge without deduction is generally used in the case one is benefiting from a flat-rate scheme or when the type of expense is not considered deductible.
Reverse Charge with tax liability and VAT deduction
If the amount of VAT due is equal to that of the deductible VAT, the Reverse Charge can be registered on a single row, by simultaneously entering both the code for the VAT due and the code for the recoverable VAT.
- The pre-defined VAT codes are used and there is no need to change the VAT table.
- In the row of the entry with VAT Reverse Charge, enter the two predefined VAT codes in the VAT Code column, separated by a colon ":".
- The two VAT codes must be complementary in order for the result to offset one other.
- One of the two codes must be set up with VAT due and the other with recoverable VAT.
- The VAT rate and all other calculation parameters must also be identical.
- If the VAT codes do not have the same parameters, an error message will be displayed.
- The sequence of codes is not relevant, you can put one or the other first.
- When reversing an operation, the first VAT code must be preceded by the minus sign "-".
Reversal is used to cancel an incorrectly posted transaction. In this case, the same elements are kept, but the original transaction is reversed:
- The VAT payable code is recorded as recoverable.
- The recoverable VAT code is posted as due.
- In the VAT columns, the amounts are preceded by the sign "+/-", which signals that the amounts offset each other for VAT purposes.
- In the account card and in the VAT summary there are separate entries for the debit and credit entries.
Example of transactions with Reverse Charge
Below are some examples of Reverse Charge transactions inclusive of VAT due and recoverable:
- VAT included and excluding operations.
- Cancellation operations, with VAT codes preceded by the "-" sign.
Reverse Charge with account in foreign currency
When the invoice is presented in a currency other than the accounting currency, the posting must be carried out on two lines:
- the invoice in foreign currency is entered on the first row
- the second line records the taxation and deduction of VAT, taking up the amount calculated in the accounting currency.
Reverse Charge at different rates
When different rates are to be considered in the taxation of the due and recoverable VAT or the VAT is partially deductible, the transaction must be made on several rows:
- On one row, enter the VAT due code (tax liability).
- On another row, the recoverable VAT code is entered.
Reverse charge with the net / flat rate method (CH)
In this case, it is not possible to post the VAT deduction, as it is not possible to recover the VAT on purchases. In any case, the tax liability must be registered.