I’ve just had a conversation with HMRC about a reverse charge on VAT needed for Amazon services. They said not many people know about it (even my accountant isn’t sure!) but that I need to start paying it and backdate it. I cannot get my head around what this is and how I calculate this. They’ve sent and explanation but if doesn’t make any sense to me, does anyone have a Layman’s explanation of how to calculate this every period, thanks in advance
It’s actually not that complicated.
Once you give Amazon your VAT number, they stop putting the VAT on your invoices (Fees).
You then have to account for it on your VAT return.
But basically, it’s treated as a null charge.
Basically Amazon do not charge you VAT if you VAT registered.
You have to work out the VAT that would/should have been charged and add it to both Box 1 (VAT Due) and Box 4 (VAT Reclaimed) so they cancel each other out.
So if your fees from Amazon were £1000 you add £200 to both Box 1 and Box 4
Thanks, this is the bit I’m struggling with, if they cancel each other out how do I owe them money. If I just need to do this going forward that’s fine but can’t work out how I owe them VAT? Thanks for trying to help with this, I thought I was switched on but this is hurting my brain today!
You don’t actually owe them vat.
It’s effectively paid, you just need to account for it.
You still have to account for it, even though no money moves.
If you haven’t been accounting for it HMRC probably have half of the transaction and values from Amazon via their EC sales list and nothing from you.
Any accredited accountant will understand EU reverse charges. If yours doesn’t get a new accountant.
No you won’t owe VAT.
When I realised my error I just sent a letter of explanation. Work out what you have missed from previous VAT returns and just say in the letter what this amount was. I made sure I explained the amount was missing from both Box 1 and Box 4 so not VAT due. I never got a response but I have kept the letter on file.
Then going forward make sure you do it correctly.
I’m surprised your accountant could not explain.
Also, as you must be VAT registered, you should now be submitting returns digitally. Accountancy packages which does this will work it all out for you - you just select the ‘Reverse charge VAT’ (or similar) when entering your Amazon fees into it.
Actually technically, it’s missing out on claiming the cost rather than owing if you don’t account for it.
As it applies mostly, in regard to Amazon fees.
But as the others have said, I’m very suprised that your accountant doesn’t get it.
Perhaps it’s time to start looking for another one, a little better versed.
Online trading is quite different to physical trading and if they don’t understand those differences, it could cost you.
Thank you all so much for taking the time to explain this. They’ve given me a backdated bill so I’ll go back to ask how I reclaim the VAT, hopefully they’ll let me do this in my next return
Are you flat rate vat?
No sadly, just normal VAT registered
the best answer!!!
Would strongly recommend you look for a New Accountant or Bookkeeper, Reverse Charge has been around for a long time now!! You should also not just depend on your Accountant/Bookkeeper it is your VAT Registration and you are the one responsible for errors and in accurate information supplied to HMR&C - Have extracted a paragraph from their site for you to review. You can also sign up to receive updates and webinars from them, might be useful to avoid errors and misinformed information!!!
How to report the error
You can send a letter instead and include the information requested in form VAT652 if you prefer.
HMRC will then send you a notice telling you if the amount you calculated is correct and any interest or tax you owe. You’ll also get a statement showing your current balance.
Contact the VAT Error Correction Team to make sure HMRC have received your correction if you do not hear from them within 21 days.
Get a better accountant
Our accountant told us to change this to zero rated as the result would be the same, I was concerned at the time as it made no sense to me, but my wife decided to go ahead and do it that way.
We will get a fine for this, even though we owe no money?
Also is there a page on hmrc you can give me a link to, so I can prove this to my accountant.
Get a better Accountant and an understanding of your obligations, as said above it is you who are VAT registered and responsible for the information on your VAT Return, no one else - See VAT Notice 741A - You should not be depending on someone else or hearsay, HMR&C will not accept this as a defence!!
I really wouldnt bother with that accountant if they do not know how to do reverse charge VAT. If they making basic mistakes like telling you to ‘zero rate’ then what other mistakes or bad advice are they giving?
It’s not worth giving them any proof as they should know so move on.
I really dont know if you will get a fine. I suppose it depends on how long the mistake has been going on for. If you fill in the form or write a letter as per instructions above and its only been last few returns where you made the mistake then I doubt you will get a fine. I would first ring the HMRC Helpline to explain it to them.
Whilst the reverse charge will have no effect on the VAT you owe you must account for VAT on the Fees you have paid to Amazon.
Amazon take the payment for the fees direct from your selling account so you never see that money but it is money you have taken as income & must account for in your VAT return as income & allocate the relevant portion to your VAT account & include in your VAT return.
e.g. if your Amazon fees for the month are £1200 then you need to declare VAT of £200 on that.
Should seek professional advice first of all, however my understanding (Sage accredited so very used to posting these types of Journals)
There are certain codes in the T20+ range specifically for reverse charge VAT, in this case it would be a T24 entry.
T24 Nominal/Control Account Settings:
Include in VAT report: YES
REVERSE CHARGE: NO (seems bizarre, but we want this on the VAT return so NO is the correct input)
ENABLE EC CODE: Yes (choose EC Purchases > Services)
LINK TO: Choose T1
Now the T24 is configured, your entries posted using this code (Batch Supplier Invoices for example) do not affect your VAT control accounts, ie there’s no VAT, but when the return is run, the following will happen:
Your NET amounts will be added to boxes 6 and 7
The NOTIONAL VAT AMOUNT (non existing, just a ‘double-entry’) will appear in boxes 1 or 3, and 4, and cancels out the NET, leaving a ‘balance’ on the return as 0.
Again, your Accountant/Bookkeeper should know these things, this is not new and VAT Notice 735 was published in 2015.
Source: Sage 50c 2019 Accreditation Workbooks and exam