taxes

Why do Expenses and Bills show up in the box 6 of the VAT return?

According to HMRC, when you buy services from suppliers in other countries, you may have to account for the VAT yourself - depending on the circumstances. This is called the ‘reverse charge’, and is also known as ‘tax shift’. Where it applies, you act as if you’re both the supplier and the customer. You charge yourself the VAT and then (assuming that the service relates to VAT taxable supplies that you make) you also claim it back. So the 2 taxes cancel each other out.

The reverse charge applies under the following conditions

The reverse charge on services only applies when the supplier is in a different country from you, you’re in business, belong in the UK and receive either:

How does Zoho Books deal with the reverse charge?

We calculate the amount of VAT based on the VAT rate specified by you when creating the Bill or Expense, and then enter it on your VAT Returns:

  • the amount of VAT we calculated in box 1, and if you’re entitled to reclaim the VAT on your purchase of these supplies, we enter the same figure in box 4 (this in effect cancels out the figure in box 1).
  • the full value of the supply in both box 6 and box 7.

Value of services from other countries

The amount of VAT payable of any service from another country is the same as the amount of VAT that would be paid if the service were supplied to you by a UK supplier for the same net amount. You must account for the value of the services in sterling, so you must convert their value into sterling if the services were priced in any other currency. You can find out more about the reverse charge and services supplied from abroad in Notice 741A.

Source: HMRC, Business Tax - Guidance.

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