EC Purchases

If your VAT Registered company purchases goods or services from a company in another EC Member State, you will not normally pay VAT on the transaction if it is in line with intra-EC trade rules.

VAT is not paid to the supplier, but it is accounted for when reporting VAT to Customs & Excise. Note that this is done using the VAT rules and rates for the UK, not for the State from which the goods or services are purchased.

Setting up VAT codes for EC purchases

An "EC Purchase" VAT code should only be used when making a purchase that conforms to Customs & Excise rules governing intra-EC supplies. The VAT Rate is set to 0%, as you are not charged VAT on the purchase. However, the amount of VAT you WOULD HAVE PAID had you purchased in the UK, will appear on your VAT reports.

For example, if you purchased a standard-rated item in the UK for £100, you would pay £17.50 VAT. If you had purchased from an EC supplier, and the purchase conformed to Intra-EC Trade rules, you would pay £0.00 VAT. However, your VAT reports would have to show the amount of VAT you would have paid if buying in the UK, i.e. £17.50.

Accounting Plus calculates this amount by using the percentage you type into the 'EC Reported Rate' box for EC Purchase VAT codes. In this example, you would create an EC Purchase VAT code with 17.5% in the 'EC Reported Rate' box, and use this on the purchase order for the item.

You may need to set up several EC Purchase VAT codes. Just as you separate UK VAT codes into Standard Rate, Zero Rate etc., you also need to separate EC Purchase codes in the same way. Customs & Excise rules mean that you have to report intra-EC purchases using the VAT rate that would be applicable if the purchase were in the UK.

For most users this means creating two EC Purchase VAT codes. The first would have the EC Reported Rate set to 17.5% and be used for standard rated items. The second would have the EC Reported Rate set to 0% and be used for zero rated items. Other users may also need an EC Purchase VAT code with an EC Reported Rate set to 0% to be used for exempt items.

Making purchases from EC suppliers

When selecting VAT codes for purchases from EC suppliers, make sure you choose an EC Purchase VAT code for goods or services supplied from the EC.

Click below for the step-by-step procedure:

To set up EC suppliers