Enter a reverse charge—Accounts Payable

In some countries where VAT or GST applies, when you purchase goods and services from suppliers outside of your country, you can apply a reverse charge to shift the responsibility for the VAT from the supplier to yourself. The reverse charge is the amount of VAT that you would have paid if you had bought the good or service in your country. You add that amount to the VAT that you are going to pay and also to the amount you are going to reclaim. This effectively zeros out the amount of VAT you pay.

In the Purchasing application, the out-of-the box United Kingdom VAT solution automatically accounts for reverse charges when your suppliers and items are assigned to the proper contact tax groups and item tax groups.
Subscription Accounts Payable
User type Business
Permissions AP supplier invoices: List, View, Edit, Add

These directions step you through how to use the Multiple taxes on line checkbox to enter a reverse charge for an AP supplier invoice.

  1. If the AP supplier invoice is not already open, find the desired AP supplier invoice in the AP supplier invoices list and select Edit.
  2. Ensure the Supplier is based outside the UK.
  3. Enter a line item for the good or service that you are purchasing.
    1. Select the Account (or Account label).
    2. Enter the Amount.
    3. Select Multiple taxes on line.
    4. Open the Details area for the line item.
    5. Enter two lines in the Taxes table to record the amount of VAT.

      For the first line, select a tax detail that reflects the VAT you would have paid if you had bought the good or service in the country in which you operate. For the second line, select a tax detail that reverses out that amount.

Example: Assume you are in the UK and buy a standard rate item from a supplier in Germany. The entry in the Taxes table for the line item would look like this:

A positive entry calculates the transaction tax for the EC Purchase Goods Standard Rate Input. A corresponding negative entry reverses the amount as EC Purchase Goods Standard Rate Reverse Charge.

In this example, the tax detail for the Line 1 is posted to an input tax liability account as a debit. The tax detail for Line 2 is posted to an output tax liability account as a credit. The two lines zero out your tax liability.