Expenses for costs from the EU

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

1. Enable EC VAT reporting

Before you can tag these expenses as EU, you need to enable the VAT reporting in FreeAgent.

To do this, 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. Tag the expense

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

Tick the appropriate box to tag the expense.

How will FreeAgent report the tagged expenses and what VAT rate should I use?

That depends on the tag.

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 work out the VAT that you would have paid on those goods if you'd bought them in the UK, depending on which category you've put the transaction into.

It'll then put that amount into box 2, and also 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.

If you're using the flat rate scheme, FreeAgent won't put the amount of this cost into box 7 of your VAT return, but if you're not on the flat rate scheme, the cost will appear in box 7 of your VAT return.

FreeAgent can't yet work out the reverse charge on these services.