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How to record costs from the EU as expenses dated on or before 31st December 2020

Here's how to tag an out-of-pocket expense as a purchase of goods or services outside the UK but within the EU.

Please note that the guidance in this article only applies to transactions dated 31st December 2020 or earlier. For transactions dated on or after 1st January 2021, please follow the guidance in this article.

An expense should be classed as EC Goods or EC Services when it applies to goods and services that were delivered to you in the UK, rather than goods or services that you bought while travelling abroad.

1 Enable additional VAT options

Before you can tag these expenses as EU, you need to enable these VAT options in FreeAgent. Select 'Settings' from the drop-down menu in the top-right corner and then select 'VAT Registration'.

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Select 'Yes' in the 'Do you need to use VAT rates other than standard UK ones?' section.

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2 Tag your expense

As you enter an expense, you'll now have the option to check whether it's not from the EC, or whether it relates to EC Goods, or EC Services.

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EC Goods

If you tag an expense as EC Goods, use either 0% or Auto as your VAT setting.

FreeAgent will assume that there's acquisition tax on those goods and that box 2 needs to be filled in.

It'll then put that amount into box 2, and, unless you're on the Flat Rate Scheme, it'll also put these into box 4 so that you don't pay any extra VAT on those goods.

Finally, it'll add the amount of the payment to boxes 7 and 9 of your VAT return.

Purchases of EC goods are reported the same way whether or not you're on the Flat Rate Scheme.

EC Services

If you tag an expense as EC Services, you also need to set the VAT rate as 0% so that FreeAgent doesn't reclaim input VAT.

Nothing will appear in box 2 or box 9 of your VAT return, because those boxes are just for goods.

FreeAgent will then work out the reverse charge on these services.

 

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