Using EU Reverse Charges and Acquisition Charges with MTD
If you select either MTD Reverse Charge or MTD EU Acquisition Charge for a tax code, transactions that use this tax code do not use the regular tax rate. Transactions using this tax code will have a non-zero tax basis and a zero VAT value.
A tax code should not be tagged simultaneously for both MTD EU Acquisition and MTD Reverse Charge.
MTD Reverse Charge
If you select this check box, you must set these values on the MTD tab:
- Set Tax Basis Boxes to 6,7
- Set VAT Amount Boxes to 1,4.
- Set Reverse Charge/EU Acquisitions Rate to any non-zero value.
With this setup, transactions using this tax code are properly calculated in VAT Return boxes 1, 4, 6, and 7. The Reverse Charge/EU Acquisitions Rate is multiplied by the tax basis of the transaction, and the resulting amount is added to the total amount of boxes 1 and 4. In its business sense, the amounts simply cancel each other in determining whether the company has any payables or receivables with HMRC; however, the amounts are still needed to calculate the correct individual box amounts. The tax basis amounts, on the other hand, are used in the summation of the VAT Return boxes 6 and 7. The tax basis amounts are taken from the vch_stax table, since this is still essentially a purchase transaction, but the amounts are also declared in the sales boxes (1 and 6).
Example:
For Tax Code AB, MTD Reverse Charge is selected and these values are used:
- Tax Basis Boxes = 6,7
- VAT Amount Boxes = 1,4
- Reverse Charge/EU Acquisitions Rate = 10
For a purchase amount of 200, these VAT Return calculations would be made:
- Box 1 = + 20
- Box 4 = + 20
- Box 6 = + 200
- Box 7 = + 200
MTD EU Acquisition
If you select this check box, you must set these values on the MTD tab:
- Set Tax Basis Boxes to 7,9
- Set VAT Amount Boxes to 2,4.
- Set Reverse Charge/EU Acquisitions Rate to any non-zero value.
With this setup, transactions using this tax code are properly calculated in VAT Return boxes 1, 4, 7, and 9. The Reverse Charge/EU Acquisitions Rate is multiplied by the tax basis of the transaction, and the resulting amount is added to the total amount of boxes 2 and 4. In its business sense, the amounts simply cancel each other in determining whether the company has any payables or receivables with HMRC; however, the amounts are still needed to calculate the correct individual box amounts. The tax basis amounts, on the other hand, are used in the summation of the VAT Return boxes 7 and 9.
Example:
For Tax Code XY, MTD EU Acquisition is selected and these values are used:
- Tax Basis Boxes = 7,9
- VAT Amount Boxes = 2,4
- Reverse Charge/EU Acquisitions Rate = 5
For a purchase amount of 80, these VAT Return calculations would be made:
- Box 2 = + 4
- Box 4 = + 4
- Box 7 = + 80
- Box 9 = + 80
All EU acquisitions are also considered purchases of the company from any jurisdiction or country, so they are always included in box 4 and 7 calculations.