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

Because the UK is officially leaving the EU on January 1st 2021, we have made some adjustments to the Debitoor software. These changes surround how you record reverse charge invoices and expenses on your account.

People holding a sign that says how to record reverse charge after Brexit

This article explains how UK businesses should record reverse charge transactions from EU businesses in the new year. If you are an EU business who sells to the UK, you can find further information on our Brexit blog for EU companies.

What is changing?

Previously, when you created an expense or invoice for an EU VAT registered business, the system would automatically apply the reverse charge VAT of 0%. Due to Brexit, instead of the system automatically applying the reverse charge, we allow you the flexibility to choose if the reverse charge should be applied or not.

There will now be an option to “Apply reverse charge” to invoices or expenses that are from EU countries. You will need to toggle this button on or leave it off depending on where your business is based in the UK and the country of your customer or supplier.

How to record invoices for EU businesses after Brexit

Before, when you created an invoice for a customer in the EU, the invoice would automatically apply the reverse charge based on the VAT rate you chose. It would also appear in your VAT Report as a reverse charge transaction.

Now, you will need to manually select if the invoice should be treated as an intra-EU operation and apply the reverse charge. This option will only appear if the customer is based in the EU and if you are VAT registered.

Image showing new Intra-EU toggle button on Debitoor invoices

If your business is based in Northern Ireland, reverse charge will apply for EU transactions, but not Great Britain transactions. If you are based in Great Britain (England, Scotland, Wales), the reverse charge will not apply.

How to record expenses from EU businesses after Brexit

Expenses recorded with Debitoor used to automatically apply the reverse charge when you selected an EU country for the supplier. Similar to the invoice change, we will now allow you the flexibility to choose if the expense incurs reverse charge or not.

Image showing new reverse charge toggle button on Debitoor expenses

As soon as you select an EU country for the supplier, the reverse charge option will appear, and you can leave it off (Great Britain), or toggle it on (Northern Ireland).

When will the reverse charge apply after Brexit?

Previously, transactions between UK and EU VAT-registered businesses would apply the reverse charge. The reverse charge applies to all products sold between VAT registered businesses, and certain services. Due to Brexit, the reverse charge will change for UK businesses starting on January 1st 2021.

If your business is based in Great Britain (England, Scotland, or Wales), and you are selling to or buying from an EU or Northern Ireland business, the reverse charge will not apply.

If your business is based in Northern Ireland and you are selling to or buying from an EU business, the reverse charge will apply. If you are selling or buying from a business in Great Britain, the reverse charge will not apply.

To sum up, if your business is based in Great Britain, the reverse charge will not apply at all. If your business is based in Northern Ireland, the reverse charge will apply for EU transactions, but not Great Britain transactions.

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

Why did we do it this way?

Because of the recent Brexit deal, we decided that allowing the user the flexibility to choose if the reverse charge should apply or not would be the best solution.

Since we have a UK Debitoor edition that includes both Great Britain and Northern Ireland users, this option allows the user to decide for themselves and means that we do not need to make significant software changes if new regulations are announced.

Summary

Now that there is a Brexit deal, you should familiarise yourself with which customers or suppliers will change in terms of the reverse charge procedure.

For the most up to date information and guidance, you should read the information on the UK Government website.

As always, if you have any questions, don’t hesitate to reach out to us via email or the in-app chat.