If you buy goods from suppliers in the EU, these will not normally have UK VAT on them - but you will still need to report them in box 9 of your VAT return, and account for acquisition tax on the purchase.
What's acquisition tax?
It's what you would have paid in VAT if you'd bought those goods in the UK.
It goes in box 2 of your VAT return, and normally is also added to box 4 so that you don't have extra UK VAT to pay.
1. Make sure EC VAT reporting is enabled
To switch on EC VAT reporting, click Settings at the top right of the screen, then click VAT Registration.
Make sure the "Enable EC VAT Reporting" box is ticked.
Save your changes.
2. Make sure the contact is set for EC VAT
Click the Edit Details button for your contact in the EU.
Make sure their country is in the EU but outside the UK, as you won't be able to tag bills for EC VAT if the contact isn't listed as in the EU.
Save any changes you have made.
3. Create your bill
You're now ready to create your bill as normal.
As you do that, tick the box saying "EC Goods".
When you create the bill, FreeAgent will then pick up that it's for a purchase of goods, and services directly related to those goods (such as delivery services), from a supplier in the EU.
Which VAT rate should I choose?
Use 0% or Auto VAT.
VAT reporting - whether or not you're on the flat rate scheme
When you correctly create a bill for the purchase of EC goods, whether or not you're on the flat rate scheme, FreeAgent will work out the VAT you would have paid on this bill if it had come from a UK supplier.
It does that by looking at the automatic VAT setting for the category you've put the bill into.
It'll then add that to boxes 2 and 4 of your VAT return, so that you don't pay any additional VAT.
This applies whether or not you're on the flat rate scheme, because acquisition tax is dealt with in the same way if you are or aren't using the flat rate scheme.
The net amount of the bill also goes into boxes 7 and 9.
I'm buying both goods and services from a supplier in the EU - and the services are not directly related to the goods.
In that case you'll need to create two bills in FreeAgent, one for the goods and the other for the unrelated services.
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