Reverse Charge – Buying Services from Abroad
The reverse charge applies when a UK business purchases services from overseas suppliers. Instead of the supplier charging VAT, the UK customer accounts for it themselves—this avoids the need for foreign businesses to register for UK VAT.
Applies to services from both EU and non-EU suppliers.
Example – Louise in Brighton
Louise, a VAT-registered marketing consultant, buys website design services from a company in India for £10,000 in the VAT period ending 31 March.
Her VAT return entries:
- Box 1 (Output Tax): £10,000 × 20% = £2,000
- Box 4 (Input Tax): £2,000 (assuming fully taxable activities)
- Box 5 (VAT Payable): Nil (Box 1 = Box 4)
- Box 6 (Outputs): £10,000
- Box 7 (Inputs): £10,000
This mirrors a domestic transaction between two VAT-registered UK businesses, ensuring consistency in VAT treatment.
Selling services abroad
If Louise provides services to a business customer in France or Australia:
- The service is outside the scope of UK VAT.
- Only Box 6 is completed on the VAT return.
- No VAT is charged, and no other boxes are affected.
Note: This applies to B2B services. If you’re using the Flat Rate Scheme, different rules may apply.
Software Tips (Xero Users):
- For buying services from outside the UK: use VAT code “Reverse Charge Expenses (20%)”.
- For selling services abroad: use “Zero Rated for EC Services”.
Free Agent Users:- You may find this link helpful (information about selling services to the EU).