The reverse charge and the sale of purchased goods

Active VAT payers who purchase goods such as steel, which are subject to the reverse charge, are required to calculate VAT themselves. But what does the further sale of these goods look like? Can the reverse charge procedure also be applied or is there a need to charge VAT? The answer to this question can be found in the article below.

Reverse Charge - Legal Basis

Pursuant to Art. 17 sec. 1 point 7 of the VAT Act, taxpayers also include legal persons, organizational units without legal personality and natural persons purchasing goods listed in Annex 11 to the Act (e.g. steel, various metal products, mobile phones, laptops), if the following are jointly met conditions:

• making their delivery is the taxpayer referred to in art. 15, where the sale is not exempt from tax pursuant to art. 113 paragraph. 1 and 9 (i.e. does not benefit from VAT exemption up to the limit of PLN 200,000),

• the buyer is the taxpayer referred to in art. 15, registered as an active VAT taxpayer,

• the delivery is not covered by the exemption referred to in Art. 43 sec. 1 point 2 (i.e. goods for which the purchase was not eligible for VAT deduction, intended for the purposes of VAT-exempt activity) or art. 122.

In the case of goods listed in item 28-28c of Annex 11 to the Act (i.e. laptops, notebooks, mobile phones or video game consoles), the reverse charge applies if the total value of these goods in an economically uniform transaction involving these goods, excluding tax, exceeds the amount PLN 20,000. It is worth bearing in mind that an economically uniform transaction is usually a contract, even if it would cover more than one delivery, order or invoice. The amendment to the VAT Act repeals Annexes 11 and 14 in favor of Annex 15. This means that the domestic reverse charge will be replaced by a mandatory split payment mechanism. Detailed information on the changes can be found in the article: Mandatory split payment - from November 2019? How to Prepare?

Reverse Charge - Purchase

If the entrepreneur has purchased goods subject to the reverse VAT charge, he is obliged to settle the tax on his own. The value shown on the invoice is treated as net value, on which VAT is charged. The value of the tax is indicated in the VAT declaration on the sales side and on the purchase side.

This transaction is VAT neutral for the buyer as the tax is shown at the same amount on both the sales and purchase sides.

There is no obligation to issue an internal invoice with tax calculation, so you can calculate the invoice and enter the appropriate values ​​into the VAT registers, which are the basis for the preparation of the VAT declaration.

Reverse Charge - Sale

As indicated in the VAT Act, the method of taxation of the sale of goods listed in Annex 11 depends on who the buyer is. The reverse charge will not apply in the case of sales to non-business persons or VAT-exempt taxpayers.

Therefore, when selling to an active VAT payer, the reverse charge procedure should be applied. However, in other cases, VAT should be charged as standard. It may therefore happen that when buying, the entrepreneur will independently settle VAT, and when selling, he will issue an invoice with the 23% tax charged.

Another case that may occur is the simultaneous sale of goods with and without the reverse charge. In this case, it is not necessary to issue two invoices. It is enough to indicate the correct VAT rates for the given goods items. Usually, for those from Annex 11 to the VAT Act, the description indicates the rate "oo" or "VAT is settled by the buyer". Importantly, when issuing an invoice, it is necessary to include an additional annotation "reverse charge".

The same applies to receiving an advance payment. The seller is obliged to indicate whether it concerns goods from Annex 11 to the VAT Act and, if so, apply the reverse charge procedure. If the order also concerned goods taxed at the rate of 23%, it should be specified which goods are specifically credited with the prepayment.

The received advance payment for the delivery must be taxed according to the same principle as for the settlement of the delivery. It should therefore be determined immediately whether the reverse charge will occur.

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Taxpayers who sell with a reverse charge in domestic trade are required to submit VAT-27 summary information. The frequency of their submission should always be ensured on a monthly basis.

There are also cases where the seller incorrectly calculates VAT or incorrectly indicates too low an amount on the invoice. In such a case, it is necessary to correct the error by referring to the period in which the tax obligation for a given transaction arose. According to the information brochure prepared by the Ministry of Finance, even though the corrective invoice is issued on the current date, it is necessary to correct the retroactive settlement.

How to check an active VAT payer?

While there is no major problem when trading with private individuals, it may occur with taxpayers who are not active VAT-payers. How to check if a given entrepreneur is registered as an active VAT payer? Some companies use the method of signing relevant declarations or require the presentation of a VAT-5 confirmation, which includes information about registration as an active VAT-sheep.

Unfortunately, neither of these methods is enough. A statement which does not indicate the true state of affairs is not a basis for the application of the reverse charge. On the other hand, the VAT-5 certificate may be out of date, as entrepreneurs have the option of returning to the VAT exemption.

The tax portal of the Ministry of Finance is here to help. The Ministry of Finance published an article that directs you to the option of checking the status of the entity in VAT.It is enough to indicate the customer's tax identification number (NIP) and the information on whether a given entity is registered as an active VAT payer is immediately displayed. For confirmation, both the taxpayer and a third party having a legal interest in this may submit an application to the competent head of the tax office for a certificate. It can be helpful when you are planning a large-value transaction. If it turned out that the buyer is not an active VAT payer, the seller would be obliged to charge VAT according to the standard rate and pay the tax to the tax office. Thus, if he applied the reverse charge procedure when selling, he would be a loss on the transaction, as he would have to charge VAT for which he did not receive payment from the buyer.

Goods purchased with a reverse charge may not always be subject to the same procedure for sale. One of the key issues is to determine on whose behalf the delivery is made. Only in the case of sales to an active VAT payer, a reverse charge is applied in the trade of goods indicated in Annex 11 to the VAT Act.

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