This video provides a comprehensive overview of the process for reversing VAT charges within the ERPAG system. The reverse VAT charge refers to the calculation of VAT by the recipient rather than the supplier. This procedure is typically necessary when an account is presented without VAT, and the recipient must calculate, report, and possibly reclaim the VAT under specific conditions.
The process of reversing a VAT charge in ERPAG involves a reverse calculation of VAT. This occurs when a provider supplies you with an account that does not include VAT. Your responsibility is to calculate the VAT yourself as an output. It’s also crucial to determine whether you have the right to reverse this calculated VAT as an input VAT.
A typical scenario for this process is in the UK when importing goods from the EU. The EU entity invoices you without VAT, and you must calculate it and determine if you need to pay it or if you can reverse it.
This is accomplished by setting up a new tax location within the system. When defining this tax location, you specify that the input VAT type is a reverse charge. There is also an option for a non-deductible reverse charge. This setup allows you to categorize tax locations for different tax categories, such as services or petrol.
For ease of operation, you can define a reverse charge for a particular supplier. This can be linked to trade types like transfer trade or international trade, indicating that the tax location applies to imports from the EU.
When handling a purchase order, either manually or via fulfillment, the tax location automatically populates. You can clearly see the VAT type. Although input VAT isn’t calculated by the supplier, deductible VAT is calculated. A separate column can be displayed to show the reverse charge amount that has been accounted for.
The system offers automatic input VAT calculation because the supplier’s amount is VAT free, while you have a defined deductible VAT which also counts as reverse charge VAT. For certain items, a reverse charge might apply, but not the deductible VAT.
While automatic calculation is recommended, there is an option for manual override if there is a discrepancy. Discrepancies can occur due to factors like customs, other duties, or rounding issues. If using the manual approach, you input amounts that align with your calculations.
The entire process is managed internally within the document and logged in the internal accounting system. Within this system, you account for duties, input VAT, and output VAT. You recognize the purchase as output VAT and account for any discrepancy, which you pay instead of the supplier.
Additionally, the system handles non-deductible VAT. You can define tax categories like “petrol” where you do not have the right to deduct VAT. The system can combine items with and without the right to VAT deduction within the same invoice. The system can automatically calculate input VAT, and you will see that deductible VAT is zero if there is no right of deduction. The non-deductible amount can be recorded based on your accounting policy, potentially increasing inventory cost, cost of services (as a landed cost), or set into a separate tax account as a tax expense. The manual VAT calculation option is also available for non-deductible amounts, recommended only when the supplier’s calculated VAT doesn’t match.
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