VAT treatment on Google

[Katemorgan]

Hi,

We pay monthly for Google (based in Dublin) out of our credit card. How should we enter monthly payments? Is it Purchase of Services Under Reverse Charge? Or no VAT?
Invoices from Google show 0% VAT.

Prior to Brexit Invoices showed Treatment under Reverse Charge but this is no longer written on the Invoice.

Apologies for my basic question, but what is Reverse Charge?

I would be very grateful for your replies.

Thanks

[Trevor S]

Hi Kate,

About reverse charges…
Normally when you buy services from a UK supplier, your supplier is required to charge you VAT and they pay it over to HMRC. But when a business buys services from a supplier based abroad, and the “place of supply” is deemed to be the UK, the obligation to account for the VAT generally falls on the customer. The supplier raises their invoice without VAT and the customer pays the VAT-exclusive amount to the supplier. The customer must then calculate the VAT due, and pay it over to HMRC. As this arrangement for paying VAT to HMRC is effectively the other way round from normal, it’s called a “Reverse Charge”.

The amount that a customer has calculated and paid to HMRC as a reverse charge is still VAT incurred their expenditure. So if they would have been able to reclaim the VAT charged by a UK supplier (because the service is being used in the course of their “VATable” business), they can reclaim the reverse charge VAT in the same way.

Cross border services is the type of reverse charge that probably affects most businesses – and a “logic” for having it is to save foreign suppliers having to register for VAT in every country that they have customers in. There are other reverse charges though, that can apply to transactions that are wholly in the UK. One that came into force from the start of March applies to many construction works. Generally, the reason given for introducing domestic reverse charges is to combat perceived areas of fraud. If the VAT on both sides of a transaction (the supplier’s sale and the customer’s purchase) is accounted for by the same person, there’s no risk to HMRC of a customer reclaiming VAT which their supplier never actually paid over.

Going back to your original question about Google…
You do still need to apply the reverse charge process to this transaction. EU VAT laws require suppliers to put a note on their invoices to EU customers reminding them when a reverse charge is necessary. The fact that we’re no longer in the EU means that suppliers might no longer need to include that note. But the “place of supply” rules in the UK haven’t changed, so we’re still required to do the reverse charge. I’m assuming that your accounting software does the VAT calculations if you pick the “Purchase of Services Under Reverse Charge” option?

Hope this helps!
Trevor

[Katemorgan]

Hi Trevor,

Thank you so much for your detailed explanation. I really appreciate it your help.

Having read your explanation, I assume that if we account for output VAT and input VAT, net VAT effect will be 0? We are able to reclaim VAT.

We use SAGE 50 Accounts- I checked and we can use T15 to account for Reverse Charge.

Regards,
Kate

[Trevor S]

That’s right, for businesses that are able to claim VAT, there’s no overall cost.  The calculated VAT amounts are recorded in both box 1 and box 4 of the VAT return.  I’ve never used Sage but I’m guessing that perhaps that tax code calculates and records the amounts.

For businesses that aren’t able to reclaim VAT, there will be a cost – although they would have had the same cost if they had been able to buy the service from a UK based supplier.

[Katemorgan]

This is really helpful. Thank you so much for your help.  I really appreciate it.

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