Reverse charge VAT to prevent carousel fraud (UK)

Reverse charge VAT is a term that covers the following scenarios:

  • Accounting for VAT as a reverse charge on services supplied to a UK business from abroad.

  • Accounting for VAT as a reverse charge on goods or services supplied to an Irish or Northern Irish business from an EU business.

  • Accounting for VAT as a domestic reverse charge to prevent fraud in trade between businesses within the UK centres. This is known as carousel fraud or missing trader intra community (MTIC) fraud.
  • Accounting for VAT for the Construction Industry Scheme (CIS) in the UK.

You set up VAT rates differently for each of these scenarios.

This topic is about combating the abuse of VAT legislation and preventing carousel fraud. If you want information about accounting for VAT as a reverse charge when acquiring goods and services in the UK from an EU supplier, see Accounting for VAT as a reverse charge when acquiring goods and services from EU suppliers (Ireland and Northern Ireland).

The HMRC introduced rules to combat the abuse of VAT regulations known as carousel fraud or missing trader intra community (MTIC) fraud.

See HMRC: Domestic reverse charge procedure (VAT Notice 735).

The rules cover any business selling or buying specified ranges of electronic devices such as mobile telephones and computer chips when an invoice for a UK VAT registered customer exceeds £5000.

In the past, a credit note was created for the return of the goods on the same value as the invoice. This amount is paid even if the credit note is less than £5000.

Under the new rules, the seller does not charge the buyer any VAT. However the invoice must clearly show the items that attract the reverse charge and the amount applicable. The HMRC have indicated that the wording should follow certain styles. The reports and invoices in Sage 200 follow these guidelines.

The buyer must record items where reverse charges have been applied separately from items where normal VAT has been applied. This allows you to identify these reverse charges when you run your VAT Return.

As part of this legislation, the seller is required to submit a Reverse Charge Sales List (RCSL) form in CSV format. To help you submit this, we've provided some reports in Sage 200.

The HMRC have indicated that the wording should follow certain styles. The reports and invoices in Sage 200 follow these guidelines. The buyer must record items where reverse charges have been applied separately from items where normal VAT has been applied. This allows you to identify these reverse charges when you run your VAT Return.

The file includes the following information:

  • The customer's VAT registration number.
  • The total net value of reverse sales to the customer in each period.

How often should you submit the Reverse Charge Sales List (RCSL)?

You will need to submit the RCSL monthly or quarterly. We suggest you check the HMRC website for up-to-date guidance: HRMC (gov.uk).

What do you need to do if you want to use reverse charge VAT?

You must:

  • Set up the reverse charge VAT rates in Accounting System Manager.
  •   Selling Buying

    Vat Return

    • Select the VAT Return check box.
    • Select the VAT Return check box.

    Terms

    • Select Reverse charge sales (Mobiles) if you are selling the devices which fall under these rules.
    • Select Reverse charge purchases (Mobiles) if you are buying items which fall under these rules.

    % (VAT rate)

    • Enter your local VAT rate for the reverse charge rate.
    • Apply the VAT rate you have set up to appropriate acquisitions from EU Suppliers (outside the UK) for the reverse charge rate. This is normally 20%.
  • Ensure that appropriate product groups in Stock Control have Use reverse charge VAT rules enabled. These product groups should be used for all stock items that fall under the reverse charge VAT rules for preventing carousel fraud.
  • For each relevant stock item, enable Use reverse charge VAT rules on the stock item Analysis tab.
  • Open SOP Settings, go the Invoice Printing tab, then select Apply domestic reverse charge VAT rules when printing invoice.

Produce the Reverse Charge Sales List (RCSL)

We've provided some reports to help you submit your RCSL.

  • Use the reports to view transactions that will appear on the RCSL.

    Open: Sales Ledger > Reports > Account Analysis > RCSL Report (Detailed) / (Summary)

  • Produce a CSV file that you can edit and submit to the HMRC.

    Open: Sales Ledger > Reports > Account Analysis > Produce RCSL Declaration

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