VAT reverse charge on international services: what UK businesses need to know

If you are a UK business and purchase services from suppliers based outside the UK, you are required to apply the VAT reverse charge. This rule ensures that VAT is properly accounted for on cross-border transactions, even when the supplier is not registered for VAT in the UK.

What Is the Reverse Charge?

The reverse charge is a method of self-accounting for VAT. Instead of the overseas supplier charging you VAT, you calculate and report the VAT as if you had received the service from a UK supplier. This applies to most services, including consultancy, software licences, legal services, and marketing support. Common suppliers affected include Microsoft, Adobe, Google, LinkedIn, Zoom, and other SaaS providers. Exceptions where the reverse charge does not apply include rent, hotels, catering and transport.

How It Works

• The overseas supplier does not charge VAT.
• You calculate the VAT at the appropriate UK rate and reports it on your VAT return.
• The VAT is declared in Box 1 (output VAT) and Box 4 (input VAT), with the net value in Boxes 6 and 7.
• If you are a fully taxable business, this results in no net VAT cost, but it must be correctly documented.

Partial Exemption and Non-Business Use

If the service supports exempt or non-business activities, only a proportion of the reverse charge VAT may be recoverable. This means the VAT could become a real cost to your business.

Impact on VAT Registration

Even if you are not currently VAT registered you must monitor your purchases of overseas services. If the value of such services exceeds the VAT registration threshold (currently £90,000 in a rolling 12-month period), you may be required to register for VAT solely to account for reverse charge VAT.

Practical Considerations

To ensure compliance:

• Provide evidence you are in business (e.g. your VAT number) to overseas suppliers.
• Ensure invoices are addressed to the business, not individuals.
• Record the transaction correctly, even if the invoice doesn’t mention the reverse charge.

To discuss this in further detail, please get in touch with one of our Indirect Tax Services team members.