XBert Type: Standard
Accounting Software: Xero, QuickBooks Online
Country Restriction: United Kingdom only
Risk Type: Tax Risk
Business Function: Purchases
Overview
This XBert checks your purchase bills for lines coded to the CIS domestic reverse charge that still carry VAT. Under the reverse charge the supplier charges no VAT, so a reverse-charge line should never have a VAT amount against it. When one does, either VAT has been wrongly charged on a supply that falls under the reverse charge, or the line has been mis-coded as reverse charge when it is a normal supply. Catching it before you file means your VAT figures stay right instead of facing an HMRC adjustment later.
What it does
Under the CIS domestic reverse charge (DRC), the supplier does not charge VAT on the supply. Instead, you - the customer - account for the VAT yourself, declaring it in box 1 and reclaiming it in box 4 of your VAT return, so a line coded to a reverse-charge or CIS tax rate should carry no VAT at all. This XBert scans the lines on each purchase bill, identifies any coded to a CIS domestic reverse charge, and checks whether they still have VAT keyed against them. It totals the wrongly charged VAT per bill so you can see the amount in pounds.
How it works
XBert checks each bill line whose tax rate name or code marks it as a CIS domestic reverse charge. The XBert raises a flag when:
a bill line is coded to a CIS domestic reverse charge tax rate; and
that line still carries a non-zero VAT amount.
The wrongly charged VAT is totalled per bill and, once it passes a small materiality floor, the alert is raised. The materiality floor means you are not chased over a trivial amount. Leaving the error in place causes real problems: your VAT return is mis-stated, because reverse-charge supplies belong in boxes 1 and 4 with no VAT on the invoice, and keying VAT here distorts those boxes and your net VAT position. You may also reclaim input VAT you were never entitled to be charged, which HMRC can disallow on review, leaving you to recover it from the supplier instead. If the supplier genuinely charged VAT in error, paying it overstates what you owe them and ties up cash until a credit note is issued. Reverse-charge and CIS errors are a known focus area for HMRC, so persistent mistakes raise your audit and penalty risk under Making Tax Digital.
Example/Use Case
Dawson Brickwork Ltd, a subcontractor, invoices Hartley Construction for £6,000 of bricklaying. The work falls under the CIS domestic reverse charge, so Dawson should charge no VAT and note "reverse charge" on the invoice. By habit, their software adds 20% VAT - £1,200 - and the line is coded to the reverse-charge rate anyway. Priya, the bookkeeper at Hartley, enters the bill as it arrived and reclaims the £1,200 in box 4. At the next review HMRC spots the contradiction: a reverse-charge line cannot carry VAT. Priya now has to ask Dawson for a corrected invoice and credit note, unpick the original entry, and adjust the affected VAT return - hours of rework that a quick check at bill entry would have avoided.
Accounting software
This XBert runs on purchase bills from Xero and QuickBooks Online.
Which countries it supports
This XBert applies to the United Kingdom only. It uses the CIS domestic reverse charge and VAT rules specific to the UK.
Processes
Business area: Purchases (accounts payable). To resolve a flagged bill:
Select RESOLVE NOW to open the bill in Xero and review the flagged reverse-charge line or lines.
Confirm whether the supply genuinely falls under the CIS domestic reverse charge.
If it does, the line should carry no VAT - remove the wrongly charged VAT, and ask the supplier for a corrected invoice if they charged it.
If it is a normal supply, re-code the line to the correct standard tax rate instead of the reverse-charge rate.
Check that the VAT return period is still correct.
Once corrected, mark the XBert as resolved.