Accounting for the reverse charge in the UK

Produced by Tolley
Accounting for the reverse charge in the UK

The following Value Added Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Accounting for the reverse charge in the UK
  • Introduction
  • When does the UK reverse charge apply?
  • Do the value of the reverse charge services count towards the VAT registration threshold?
  • What happens if the supplier is not VAT registered?
  • How does a business account for the reverse charge?
  • What is the impact of partial exemption and non-business use?
  • Services subject to special rules within the EU
  • Has the UK extended the scope of the reverse charge?
  • Anti-avoidance reverse charge
  • More...

Introduction

If a UK business receives a reverse charge service from a supplier located in another country, the supplier should not charge VAT on the services supplied as the place of supply is shifted to the country where the customer is located (B2B services). The supplier needs to quote a narrative on their invoice which states that this is a reverse charge service.

If the services are provided to a UK business customer, the customer is required to account for any VAT due on the services received via its UK VAT return. The procedure is called the ‘reverse charge’. Most services provided by non-resident suppliers (EU and non-EU) to customers in a member state are reverse charge services and the customer should account for any VAT due on the receipt of these services.

When does the UK reverse charge apply?

The reverse charge applies where the following conditions are met:

  1. there is a supply of services by a person who belongs in a country other than the UK

  2. the recipient is a ‘relevant business person’ who belongs in the UK (see the Where is the place of supply of services? guidance note)

  3. the place of supply of the services is the UK (see the Where is the place of supply of services? guidance note)

  4. in respect of certain services (discussed below), the recipient is VAT registered in the UK

VATPOSS14300, VATPOSS06300, VATPOSS01350

Do the value of the reverse charge services count towards the VAT registration threshold?

If the UK customer is a business that is not registered for VAT, the value of the reverse charge services received should be included when calculating whether the UK VAT registration threshold has been exceeded (see the Overview ― registering for VAT guidance note).

What happens if the supplier is not VAT registered?

If the UK customer acquires services from a supplier in another member state who is not VAT registered, the UK customer is still required to account for VAT using the reverse charge.

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