In some business-to-business situations, it might be considered too risky to have the seller collect the VAT (value-added tax). Therefore, the liability for payment of VAT to the tax authorities is shifted to the customer. A reverse charge is the process of ascribing the tax liability to the customer. For example, when a cross-border supply occurs, it might be taxable in a country where the seller is not established. Therefore, it could be considered too risky for the seller to collect and remit VAT, so the customer will reverse charge the VAT. Another example might be on goods such as the bulk supply of mobile phones or tablets, which can sometimes be involved in fraud. A customer might create a domestic reverse charge for the VAT amount.
Do you want to:
Create & Post a Payable with a Reverse Charge
- From Accounting Home, under Cash Out select Payables (Vendor Invoices).
- From the list view, click New to create a new Payable. The New Payable dialog box displays.
- Complete the required fields, which display with a red asterisk.
- Posting Status
- Payee Reference
- Issue Date
- Select a Vendor or Contact.
Important: Payee cannot be an Employee when a VAT Tax Group is selected on a Payable Line.
- (Optional) Complete additional fields.
- Click Save. The Payable record displays.
- Scroll to the Payable Lines related list. To add Payable Lines, click Mass Add/Edit Rows.
- Click Add New Line.
- (Optional) Click the Lookup icon to search for and select a Product for the line.
- Enter the Quantity.
- Enter the Unit Cost - the cost per unit. This is a required field.
Important: The Total field is recommended to be read-only on the user interface. The amount that is entered in the Unit Cost field multiplied by the Quantity will determine the Total (Quantity x Unit Cost = Total). The Total field will also include the Tax Amount. If the Quantity field is blank, upon saving, a Quantity of one will auto-populate for the line.
The Total field is controlled by Field Level Security (FLS). Therefore depending upon the permissions granted through a user’s Profile and/or Permission Set(s), the Total field might be editable. However, editing this field directly in the UI is NOT recommended.
- Enter or search for an Expense GL Account.
- Click the Lookup icon to search for and select an appropriate reverse charge Tax Group for the line.
Tip: To view all of the available Purchase Tax Groups for your country, enter the first three letters of the Tax Group in the Lookup search textbox. For example for Great Britain, enter “GBP” in the Lookup search textbox and click Go. Otherwise, you can view all of the available Tax Groups from Accounting Home, under Master Data Setup | Tax Groups.
- (Optional) Add additional lines.
- At this point, you can select one of the following: Save & Complete, Save & Post, etc.
Note: On a reverse charge, when the record is posted, transactions will be included for both an Input VAT entry and an Output VAT entry.
Note: Posted records can be viewed in Avalara VAT Reporting.
View the Payable in VAT Reporting
- To view the Payable in Avalara VAT Reporting, login your account.
- From the Transactions menu, select Processed Documents.
- (Optional) Select/enter any or all of the following, and then click Apply.
- Processed After
- Processed Before
- Filename Contains
- Only Show Manual Documents (Only applicable if manual documents were created in Avalara VAT Reporting.)
- Under File name, click the hyperlink for the Payable that you want to view.
Note: In addition to the Invoice Number, each filename includes a date and time stamp. This information is included so that each Payable/Invoice Number can be uniquely identified.
- Click the Invoice Number hyperlink.
- Click the Invoice Number hyperlink again to drill-down for viewing line item details. Then, scroll down the page to view each line, as necessary.
On the sample Payable Line/Invoice Line below, the VAT amount does not display because it is not payable to the supplier, but rather directly to the tax authorities.
- Scroll down the page to display the Additional Document Data.
Note: For a reverse charge, the Input VAT amount and the Output VAT amount will be included as part of the VAT Return details. Additionally, the Reverse Charge Listing section is also included.
- On the Payable Partial Pay screen, if associated the Payable is a reverse charge, then the Amount to Pay field will not include the Purchase Tax (VAT) Amount.
- On the Payable Pay Batch screen, if associated Payables are reverse charges, then the Payment Amount field will not include the Purchase Tax (VAT) Amount for ONLY the reverse charge Payables.
- If a Batch has a mix of reverse charge and non-reverse charge Payables, the combined Payment Amount will only exclude the Purchase Tax (VAT) Amount for the reverse charge Payables.