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VT Transaction+

The following information is for general guidance only and should not be taken as definitive VAT advice, since individual circumstances may vary. To determine the VAT treatment for your particular transactions please refer to HMRC guidance or seek tax advice from an accountant.

Introduction

For an overview, please refer to Sales by subcontractors (cash accounting).

The guidance below is to generate an invoice in VT Transaction+. If you have generated invoices elsewhere and just need to enter the transactions in VT Transaction+, please follow the steps at Entering DRC sales (cash accounting).

To raise a DRC sales invoice outside the cash accounting scheme:

Note: If you are not on cash accounting, refer to Raising a DRC sales invoice instead.

1.Create an invoice document template

This needs to contain certain wording required by HMRC - see Creating an invoice template for DRC services.

2.Set up a service

Select Set up>Invoices>Products and Services>New

Select the VAT rate as Outside scope (this is not actually outside the scope of VAT, however this will prevent the sale from being picked up in the VAT return under the cash accounting method. Instead, it will be picked up in the VAT return under the standard accounting method by entering the journal described in step. 4.

Enter the description of the service which should include the actual VAT rate for the service, and the wording 'reverse charge' (as required on the invoice by HMRC - see Invoice documentation below)

For example:
RFC2

3.Raise the invoice

Select the SIN transaction

In the Template: field, make sure the template you created in step 1. is selected:

Select

In the Name/code drop-down, select the service(s) you created in step 2:

DRC service35

Leave the Type of sale (for VAT purposes) setting as Normal and save the transaction.

You can then print, email or save a PDF of the invoice in the normal way as described in Printing an invoice.

4.Enter a journal to record the net sale to the VAT return

Use the JRN function (or journal import function) to enter the following journal with the same date as the invoice from step 3:

Debit

Credit

Ledger

Account

Net

0.00


Creditors

VAT - Output

0.00


0.00

Creditors

VAT - Output

Net amt - enter as a minus figure

Enter the invoice number of the invoice from step 3. in the Entry details field

For example for a net sale of £200,000.00:

jnl4

Screenshot of a journal entry to record the net value of the sale in the VAT return if on cash accounting

Invoice documentation

You are required by HMRC in their guidance here, to state clearly on the invoice:

that the domestic reverse charge applies, and that the customer is required to account for the VAT; and

how much VAT is due under the reverse charge or the rate of VAT if the VAT amount cannot be shown, but the VAT amount should not be included in the amount charged to the customer

reference to ‘reverse charge’

HMRC provide the following example of this:

HMRC invoice example

Screenshot of HMRC's example of a reverse charge invoice (image published under the Open Government Licence v3.0)

To generate an invoice document in VT Transaction+ similar to HMRC's example, you need to:

ensure that the description of the service(s) you set up in step 2 above, includes reference to the actual VAT rate for that service and the wording 'reverse charge'

create a new invoice template that does not include VAT in the amount charged, and also contains text at the bottom to state that the customer is to account for the reverse charge. This can be done by following the steps at Creating an invoice template for DRC services.

Applying the CIS deduction

If you need to also apply the CIS deduction, follow the same steps as above with the only difference being the following in step 3:

an additional line is entered for a CIS tax deduction service item

Using the same data as in the example above with a CIS deduction at 20%, the invoice is entered as follows:

SIN_CIS3

The CIS Tax service item needs to be set up using the method explained here, with a price of £0.00 (the actual price is entered directly in the Price column on the invoice) and set to outside the scope of VAT.