Reverse Charge for old invoices

[petersulford]

We often carry out services for foreign businesses in other EU countries. The work is carried out in the foreign country, and so is outside the scope of UK VAT. So instead, the EU business must account for the VAT locally according to the reverse charge rule.

The problem is that this year we backdated out VAT registration by 4 years. This means that there are numerous sales invoices sent to EU businesses in the past that:

a) did not include our VAT number, and;
b) did not include an indication along the lines of "reverse charge applies".

I understand that for domestic sales invoices (to other UK businesses), we can either re-issue the invoice and hope that the customer agrees to pay the additional VAT, or just stomach the additional VAT costs ourselves. How does this work for EC sales though?

 

[TheCyclingProgrammer]

Your customers should have been applying the reverse charge to their purchases from you regardless of whether or not you were VAT registered even if it didn’t have a notice indicating that it should apply. If you get an invoice from a non-EU supplier for example it’s likely it won’t say anything about the reverse charge but it still applies.

If they haven’t applied the reverse charge I don’t see how this is your problem.

What you might need to do as well as submitting backdated VAT returns is submit backdated EC sales lists for these supplies. HMRC should be able to confirm this.

 

[petersulford]

Thanks for the reply!

Regarding the UK invoices, if we add VAT to old invoices, am I right in assuming that is HAS to be added on top of the original invoice amount?

ie. if we originally invoiced for £1,200, I would now have to account for £1,200 plus £240 VAT?

Or would it be ok to change to invoice to £1,000 plus £200 VAT = total £1,200?

We will be covering the VAT ourselves in any case, so would obviously prefer the latter, if that is allowed.

 

[TheCyclingProgrammer]

You can treat your original invoiced price as either gross or net of VAT though if your customers aren’t VAT registered I would imagine they won’t be inclined to pay additional VAT years later.

In fact I would be surprised if they have any legal obligation to pay any additional money at all unless they were aware at the time you were in the process of registering for VAT.

 

[petersulford]

Thanks for all the help.

We are currently due a significant VAT refund because our expenses are primarily in the UK, and are used to produce services rendered to business customers in other EC countries.

Would HMRC theoretically have a problem with this in the long run? Am I right in my understanding that HMRC effectively does receive the VAT that is paid on those services because of the reverse charge?