Reverse charge VAT on purchases

[TheCyclingProgrammer]

I recently became aware that I had not been applying the reverse charge mechanism to certain supplies made to me from foreign suppliers, such as web hosting. The software I use to do my VAT returns (FreeAgent) didn't actually support this.

Because this doesn't actually affect my VAT liability, even on the flat rate scheme (the reverse charged amount is still reclaimable), it's just a reporting exercise and my accountant told me not to worry about it.

FreeAgent recently rolled out an update with partial support for the reverse charge (they seem to think it only applies to purchases from EU suppliers, which I believe is wrong) and I'm wondering if I should now bother reporting it. Is it going to look odd that I'm suddenly reporting reverse charges when I didn't previously?

I've also read some views that the reverse charge doesn't apply full stop to people on the flat rate scheme. This seems like a misinterpretation of the legislation to me as the HMRC guide for filling out your flat rate VAT return makes it pretty clear that you should include reverse charged supplies in Box 1:

http://www.hmrc.gov.uk/vat/managing/...te-returns.htm

What's not clear is if anything needs to be entered into box 6 or 7 like you would on the normal VAT scheme. HMRC guidance isn't very clear. Maybe worth a call to the VAT helpline?

What does everybody else do?

[TheCyclingProgrammer]

A call to the HMRC VAT helpline helped clarify a few things:

* The reverse charge definitely applies to all worldwide supplies, not just EU supplies, as FreeAgent are currently implying.

* If you're on the FRS, you enter the reverse charged VAT into boxes 1 and 4 but you do *not* enter the net value into box 6 and 7. Referenced Vat Notice 733, s6.4. So FreeAgent isn't doing this correctly (I just tried it) so I've raised this with them.

On the subject of whether the previously unreported reverse charges would be an issue, given the VAT liability is unaffected...the rather grumpy sod on the other end of the line insisted I would need to submit corrections. For the entire 5 years since I've been trading!

So I face the choice of:

* Continue not reporting reverse charged VAT as before. Accountant seems to think its rather immaterial and it certainly does seem like a rather pointless pen pushing exercise.

* Start reporting reverse charge VAT, don't worry about previous incorrect returns and hope it isn't an issue.

* As above, but submit corrections for the entire previous 5 years.

Tax doesn't have to be taxing...