Reverse charge question

Hello,

I am in EU, V.A.T registered and have my first V.A.T registered customer in another EU member state.
I called the V.A.T dept and they have told me that the invoice should show “Reverse charge” and 0%.

When looking at this tutorial:
https://www.manager.io/guides/16455

I am a bit confused as it will still shows my V.A.T with RCM in front of it.
What would be the difference between creating a custom tax at 0% without clicking on the reverse charge tick box, and one by clicking on the tick box? It is my understanding that by clicking it, you get access to an extra reverse charge report, am I correct? But accounting wise, the V.A.T should not be added anyway.

From what I understand, where B2B trades happen between EU countries, the V.A.T is levied on both the seller and the buyer(really on the buyer). Did I understand this correctly?

The part I am not understanding is…If EU countries remove V.A.T from B2B between them, how to they make money? Only on B2C?

I tried to find Youtube videos on this but it is not clear.

Update:
In between the post I tried to create a new tax code and ticked the reverse charge. All the amount I have input are red, any idea why, please? My quantities are also showing in minus
REVERSE_CHARGE

I am using this version:
19.2.86

Thank you.

You can name the custom tax code anything you want. But normally, it is named with the percentage that is reverse charged.

No. The reports referred to in the Guide are available whenever tax codes are used. There is no special RCM report. But transactions coded with the RCM VAT code will be separately reported on the reports.

RCM VAT is not necessarily an easily understood concept. I recommend you create a test company and try out some transactions that will not risk corrupting your ordinary accounting records.

This forum is not the place for explanation of EU tax laws.

Again, this has nothing to do with Manager accounting software.

Because the amounts and balances are negative.

You should update your software. You are hundreds of versions behind.

Thanks, I went on the website and downloaded the latest version of Manager.io but the balances in the reverse charge area are still negative. What else can I do please? I tried to edit them and click on update but same issue.

Thank you.

I did not address how those transactions became negative because you did not explain what the screen shot shows. You asked why entries are red.

My apology, here is the order of the clicks with images:

Settings>>Tax Codes>>>Transactions(the number in blue on the right side)

I really cannot work out why the quantity(and amount) shows as negative as well in the Settings>>Tax Codes>>>Transactions when it is positive in the invoice itself.

Please let me know if you need more images. Sorry about the blurring but I need to protect my customer’s identity.

Thanks.

Benoit

No problem with blurring proprietary information.

Here is the answer to your situation, now that you have given more information: You are using the RCM VAT tax code on sales invoices. Reverse charged VAT should only be applied when recording purchases (either by purchase invoice or direct payment). The point is that, with RCM tax codes, tax on sales and tax on purchase offset directly, resulting in no net tax due or receivable.

Tut,
I understand that the RCM is there to stop the seller registering for V.A.T. in the buyer’s country, hence eliminating a lot of paperwork. But I did not fully understand your answer, does this seems right to you to have both a negative quantity and net price? If yes, then I will just carry on as I am:-)
I am still not understanding the logic behind the negative balance.

Thank you.

Benoit

No, but you missed my point. The reason these quantities are negative is because you applied a RCM tax code on a sale. They should only be applied on purchases, in which case, the numbers will be positive.

I see, so I need to create 2 different tax codes. 1 for the sale(Non RCM) and one of the purchase(RCM).

The sale tax code can be a custom tax code I call (Reverse Charge) but I do not tick the tick box that changes the tax into RCM. Now for the other one, the purchase, I can leave it named as RCM but need to tick the box.

Today I need to create a customer invoice(EU to EU and B2B), I will use the first box(Reverse Charge) and set it to 0%. Am I correct?

It is very confusing indeed!

Thank you,

No. If you are selling under circumstances where reverse charged VAT is appropriate, then you do not need to apply any tax code to line items on your sales invoice. Responsibility for assessing and collecting the tax has been transferred to the purchaser (who will immediately offset the tax they would normally pay to a supplier with their claim for VAT recovery on the purchase). You might be required to add a note (via a custom field) to your sales invoice indicating the sale is made under a RCM VAT scheme. But the entire point of RCM VAT is that both sides of the tax transactions are shifted to the purchaser so the foreign country does not have to collect remittances from a seller in another country, and sellers do not have to file VAT returns in foreign countries.

Except for the custom tax code necessary for RCM VAT, all others you require should be installed as localizations from https://www.manager.io/localizations/countries. See the Guide: https://www.manager.io/guides/22137.

Now, having said all that, there are some EU countries that specify 0% tax codes for intra-EU trade. Where such is known to be the case, those tax codes are included in the localization package.https://www.manager.io/guides/22137. You have not mentioned which country you are in, but the installation instructions on the Localizations web page will tell you whether any such tax code will be added when you localize.

Thanks I pmed you my country.
I downloaded the required package but I am not sure this will workas I now see 3 new taxes(I only use one of them).
The problem is that due to the V.A.T return complexity(over 40 boxes), I had to create different taxes like:
xx% sales of service
xx% sales of product
xx% purchase 0% IC
xx% Sales 0% IC
and many more.

I could not find another way to dissociate the V.A.T in the reports to help me fill in the V.A.T returns.

When the module is downloaded, it only gives you 1 standard V.A.T for both the purchase and sales.

I do not understand this statement. You first said there were three. The way VAT tax codes work is to use whichever is appropriate for the purpose. All of them post to Tax payable, where they offset one another, depending on whether the code has been applied on a sale or purchase.

Understand that Manager does not necessarily directly produce every bit of information you need for filing taxes. Sometimes you need to work to dig things out in the right categories. Intelligent design of your chart of accounts can help in this regard. The various tax reports also help separate things.

It may also be that someone will eventually create a report transformation to simplify your tax filing. So far, this has happened for a few countries, such as Australia, Netherlands, and the UK. Have a look at those countries’ localization packages to see the kinds of things that might have to be done. Often, extensive use of custom fields is necessary.

Yes the other 2 taxes are irrelevant to my type of business.
What I meant is that the localisation package does not seem to be needed because all it does is add 1 standard V.A.T tax code which can be easily added by hand.

Regarding the report transformation, could you please kindly send me a page where I can check the type of logic/code that needs to be built? I am a php/js coder, i should be able to do that.

It looks like Manager has been built with electron.

Have a look at Localisation: GST/VAT worksheet programming guide

As explained in the above reference; it enables code you generate to be also usable by all other users in your country (instead of only working with your business file).

Again as explained in the above reference, Manager reports these separately for each tax code (based on the context the tax code is used).

The interface Lubos has provided should be easy for you as it is aimed a users with less programming experience but good local accounting knowledge. Note the details are likely to change but very similar functionality is likely to be maintained.

Note the detail of reverse changed VAT may also change at some time see Tax Withholding Percentage however these changes are likely to simplify writing localisation using them.

The easiest way is to create a test business and see what happens when you add test entries (in general nothing is reported when no test data has been entered). Doing this also simplifies posting screen shots as only dummy data is shown.

You can also look at other EU countries localisation such as the UK or Netherlands for illustrations of how it is generally handled. However details of local tax laws, accounting conventions and Managers conventions are almost certainly to be the difficult part for non accountants.

Thanks for your reply and explanation. I will check the programming guide later on.

The problem with doing this is that reports only pick up transactions using the tax codes downloaded with the report. The reports are designed with knowledge of only those tax codes.

So right now I am with my wife looking at this and we are a bit confused…
I understand that you said earlier on that we see negative numbers because we have applied RCM to the sales. Ok with that.
You also suggested that we should not add any tax when it is a sale(Intra community B2B). The problem with that is, how at the end of each accounting period, would you remember(without external notes) which sales have to go into a recapitulative statement is this sale is treated like a EU to USA sale(no V.A.T). This is the part we do not get.

I also wanted to add(update) that based on the above picture, the negative numbers do not only happen when I set a sale to 0% but it happens to any sales(20%, 18%). All the purchases are in black and positive and all the sales in red and negative. I am now wondering if this is actually just normal.

Thank you.

What I tried to convey is that, from an accounting perspective, you don’t need a 0% tax code when no VAT is being assessed on a sale. But I also said later that some countries require one. When this is the case, that is for administrative purposes; it has no financial effect. Your use case also addresses an administrative purpose, but an internal one.

It is important to understand that some things are required in order to get the accounting correct. Other things may be required in order to comply with legal requirements. Still others may be useful for streamlining your personal workflow. The program does not necessarily anticipate all of those.

Yes, it is. As I said, the numbers you showed in your screen shot are all negative (and therefore red) because you incorrectly applied RCM VAT to sales transactions. If you only apply RCM VAT tax codes to purchases, you will see them as positive numbers and in black.

By doing this, you are denying other Manager users from your own country from assisting you.

Most countries use only one VAT code for “normal” purchases and sales.
Accounting wise they are collected together into the one Tax Payable account (Black & Red).
However, in the background Manager keeps a variety of separate purchase & sales totals based on the tax codes used so that they can be entered on to the various reports correctly.

Custom tax codes are limited to how they can be used compared to the in-built (downloaded) ones.

I understand totally what you mean, but this is not happening just to RCM.
I have set this one as a custom tax and not RCM.

The table still shows all the amounts as red.
1_002

My wife looked at it as well and cannot work it out.

Thank you.