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Debitoor update (EU): How to record reverse charge after Brexit

As you know, the UK will be leaving the EU on January 1st 2021. Because of this, we have had to make some adjustments to the Debitoor software surrounding how your EU business records reverse charge transactions for UK customers.

How to record reverse charge for UK customers after Brexit title image

This article explains how EU VAT registered businesses will record reverse charge invoices and expenses from UK customers and suppliers in the new year. If you are a UK based business, you can find further information on our UK Brexit blog.

What is changing?

Previously, when you recorded an invoice or expense on your Debitoor account for a UK VAT registered business, the reverse charge VAT of 0% would automatically be applied.

Due to Brexit, we will now offer you the flexibility to choose if the reverse charge should apply or not for UK transactions. If you enter a customer or supplier with a UK address, a button will appear to “Apply reverse charge”. You can leave this option off, or toggle it on.

When will the reverse charge apply after Brexit?

The reverse charge applies to all products sold between VAT registered EU businesses and some services. Now that the UK is officially leaving the EU, the reverse charge will be changing on January 1st 2021.

The reverse charge will still apply to customers and suppliers in Northern Ireland. However, it will not apply to customers or suppliers in Great Britain (England, Scotland, or Wales).

Therefore, you will need to check your customer or supplier’s address to see which UK nation they are based. If they are based in Northern Ireland, you can toggle the reverse charge button on. If they are based in England, Scotland, or Wales, you will leave the reverse charge button off.

As with any changes like this, there are certain exceptions to this rule. You should speak to a qualified accountant or seek advice on your government's website to ensure that you are correctly recording reverse charge for UK customers and suppliers.

How to record invoices for UK businesses after Brexit

Prior to this change, when you created an invoice for a UK customer, it would automatically be recorded as a reverse charge transaction if you selected 0% VAT. It would also reflect in your VAT Return as such.

You will now need to manually select if the invoice should be treated as an intra-EU operation and apply the reverse charge. You will need to toggle this button on for the reverse charge to be applied. The button will only appear if the customer has a UK address and you are registered for VAT.

Image showing the new Intra-EU toggle button on Debitoor invoices

If the invoice is for a customer in Northern Ireland, the reverse charge button should be toggled on. If the invoice is for a customer in England, Scotland, or Wales, the reverse charge will not apply.

How to record expenses from UK businesses after Brexit

If your business buys goods from the UK, a similar change has been implemented for UK expenses. Previously, the reverse charge would automatically be applied if you selected “United Kingdom” as the supplier country. Now, you will need to manually select if the reverse charge should be applied to the expense or not.

Image showing the new reverse charge toggle button on Debitoor expenses

This option will only appear if you select a UK supplier. Other EU country suppliers will still automatically apply the reverse charge VAT. Similar to the invoices, if your supplier is located in Northern Ireland, the reverse charge will apply. If your supplier is in England, Scotland, or Wales, reverse charge will not apply.

Why did we do it this way?

Because of the recent Brexit deal, we decided the ideal solution would be to allow the user to select if the reverse charge should apply or not.

Since Brexit processes could still be changed, this allows you the flexibility to choose the correct option, and also means that we do not need to make significant software changes.

Reverse charge after Brexit - Summary

Now that there is a Brexit deal, you should familiarise yourself with which of your customers and suppliers are based in the UK. You will also need to determine which ones are based in Northern Ireland, and which are based in Great Britain (England, Scotland, Wales). It would be beneficial to include this information in their address on Debitoor if it is not already.

For the most up to date information and guidance, you should visit your government’s website. If you have any questions about the Debitoor change, don’t hesitate to reach out to us via email or in-app chat.