Reverse charge VAT in AccBooks AI

What is reverse charge VAT?

Under normal VAT rules, the supplier charges VAT and accounts for it to HMRC. Under reverse charge, the customer accounts for both the output VAT (as if they had charged it) and the input VAT (as if they had paid it). The net effect on a fully-taxable business is zero, but the return boxes are populated differently.

There are two types of reverse charge in AccBooks:

1. Domestic Reverse Charge (DRC) — for construction and building services in the UK.
2. Overseas reverse charge — for services received from suppliers outside the UK.

Domestic Reverse Charge (construction)

Who it applies to

DRC applies when:

• Both the supplier and customer are VAT-registered.
• The work falls within the Construction Industry Scheme (CIS) definition.
• The customer is not an “end user” (i.e., they will incorporate the work into further supplies).

Enabling DRC in AccBooks

Go to Settings → VAT → Domestic reverse charge and toggle it on. You’ll need to specify:

• Whether your business is a supplier of construction services, a customer, or both.
• The CIS sub-contractor deduction rate applicable to your business (if you’re a contractor).

How AccBooks handles DRC transactions

As a supplier (you issue the invoice): AccBooks marks the invoice as DRC, charges 0% VAT, and adds the statement: “Reverse charge: customer to account for VAT to HMRC.” Box 6 of your VAT return is increased by the net value, but Box 1 is not affected.

As a customer (you receive the invoice): AccBooks adds the VAT to Box 1 (output) and Box 4 (input) of your return. The net effect on Box 5 (amount due) is zero.

Transaction classification

When you post a purchase invoice from a construction supplier, AccBooks detects whether DRC applies based on:

• The supplier’s CIS registration status (pulled from HMRC).
• The description of services (AI classification).
• Your account settings.

If AccBooks detects a potential DRC transaction, it shows a banner: “This may be subject to domestic reverse charge. Confirm?” You can accept or override the classification.

Overseas reverse charge

When it applies

If you receive services from a supplier outside the UK (e.g., software subscriptions from a US company, consulting fees from an EU firm), you must account for reverse charge VAT under the “place of supply” rules.

How AccBooks handles overseas services

1. When you post a purchase invoice from an overseas supplier, select Overseas supplier as the supplier type.
2. In the VAT treatment dropdown, choose Reverse charge (services).
3. AccBooks adds the VAT to both Box 1 and Box 4. No cash changes hands with the supplier on the VAT element.

Zero-rated imports of goods

Note: Since Brexit, imports of goods from the EU are subject to import VAT handled by HMRC at the border (postponed VAT accounting), not reverse charge. See VAT on imports and exports for details.

Checking reverse charge on your VAT return

On your VAT return preparation screen, click Box 1 to see a breakdown of standard output VAT vs. reverse charge output VAT. Both are included in Box 1 but are listed separately for audit clarity.