Reporting VAT > EC purchases
The information below is not an in-depth guide to EC trade. For more information, please refer to ‘VAT Notice 725 The Single Market’, available from your local VAT Business Advice Centre, or consult your accountant.
If your business is a UK VAT-registered company purchasing goods or services from a company in another EC Member State, you will not normally pay VAT on the transaction if it is in line with intra-EC trade rules.
VAT is not paid to the supplier, but it is accounted for when reporting VAT to HM Revenue & Customs. Note that this is done using the VAT rules and rates for the UK, not those for the EC State from which the goods or services are purchased.
An ‘EC Purchase’ VAT code should only be used when making a purchase that conforms to HM Revenue & Customs rules governing intra-EC supplies. The VAT rate is set to zero per cent, as you are not charged VAT on the purchase. However, the amount of VAT you would have paid had you purchased in the UK, will appear on your VAT reports.
For example, if you purchased a standard-rated item in the UK for £100, you would pay £17.50 VAT. If you had purchased it from an EC supplier, and the purchase conformed to Intra-EC Trade rules, you would pay £0.00 VAT. However, your VAT reports would have to show the amount of VAT you would have paid if buying it in the UK, that is, £17.50.
Your software calculates this amount by using the percentage you type into the EC Reported Rate field for EC Purchase VAT codes in the VAT Code Information window. In this example, you would create an EC Purchase VAT code with 17.5 per cent in the EC Reported Rate field, and use this on the item’s purchase order.
You may need to set up several EC Purchase VAT codes. Just as you separate UK VAT codes into Standard Rate, Zero Rate, and so on, you also need to separate EC Purchase codes in the same way. HM Revenue & Customs rules mean that you have to report intra-EC purchases using the VAT rate that would be applicable if the purchase were in the UK.
In most cases, this means creating two EC Purchase VAT codes. The first would have the EC Reported Rate set to 17.5 per cent and be used for standard rated items. The second would have the EC Reported Rate set to zero per cent and be used for zero rated items. You may also need an EC Purchase VAT code with an EC Reported Rate set to zero per cent to be used for exempt items.
To create a VAT code for EC purchases
Go to the Lists menu and choose VAT Codes. The VAT Codes List window appears.
Click New. The VAT Code Information window appears.
In the VAT Code field, type a code for the EC VAT purchases (for example, ECP) and press Tab.
In the Description field, type a VAT code description such as
EC Purchases VAT Code.
In the VAT Type field, select VAT - EC Purchases. The VAT Rate field is set to zero per cent.
In the EC Reported Rate field, type the rate you would have paid if buying in the UK.
To set up EC suppliers
In the Card File command centre, click Cards List. The Cards List window appears.
Locate an EC supplier’s card and click Edit. The Card Information window appears.
Select the EC Supplier option.
Click the Buying Details tab.
In the VAT Code field, select the default EC VAT code for that supplier.
Select the Use Supplier’s VAT Code option and click OK.
Repeat from step 2 for other EC suppliers.
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