VQOTW: Reverse Charge: Purchases of Services from Overseas Suppliers

Since Brexit we are still confused about the treatment of purchases of services from overseas suppliers. Common expenditure for our VAT registered clients includes software downloads, digital advertising space and online marketplace seller fees. Is there a difference between EU and non-EU purchases and what are the reporting requirements? 

Despite the raft of changes regarding goods post Brexit, services have largely remained unchanged. Purchases of business-to-business (B2B) services from overseas suppliers are dealt with under the reverse charge procedure. VAT Notice 741a section 5.1 states ‘if you’re a UK recipient of services from a non-UK supplier the following rules apply to you.

The reverse charge applies where:

  • the place of supply is the UK
  • the supplier belongs outside the UK
  • you belong in the UK
  • the supply is not exempt (this includes exempt supplies subject to an option to tax)
  • for supplies not within the general rule, you’re VAT registered in the UK’

The reverse charge is a simple procedure where your clients are treated as the purchaser and the supplier for all B2B general rule supplies of services. This mechanism ensures overseas business are not having to unnecessarily register for UK VAT, but it would still apply even if an overseas supplier already had a UK VAT registration. This accounting procedure has remained the same pre and post-Brexit and does not differentiate between EU and non-EU sellers.

The reporting requirements are as follows:

  • notional amount of output tax in box 1 (VAT due on sales)
  • notional amount of input tax in box 4 (VAT reclaimed on purchases)
  • full value of the supply in box 6 (total value of sales)
  • full value of the supply in box 7 (total value of purchases).

For example, a VAT registered business has purchased software services from a US business totalling £200. £200 would be entered into boxes 6 and 7 of the clients VAT return and is treated as a net amount. The notional VAT would be 20% of that figure, therefore, £40 would be entered into box 1 and (if fully taxable) in box 4.  Partly exempt businesses would include the input tax element in their partial exemption calculations and recover accordingly.

If you have clients who are in business but are not registered for VAT, the reverse charge will still have an impact on them. The value of overseas purchases of services will be included as taxable turnover in their calculation for VAT registration purposes.

Remember, members of our VIP Tax Team service can call our priority advice line for instant help with tax, VAT and employment queries such as this.

To unlock your access to the advice line, plus tax & VAT consultancy support, monthly eCPD modules, in-depth webinars and more, call 0800 231 5199 or book your free My VIP Tax Team consultation now.

Please share this article with your clients

Our team of expert consultants have a wealth of experience and can also provide a written consultancy service to support your practice, like having your very own tax and VAT department.

Why not see what My VIP Tax Team can do for your practice, call 0800 231 5199 or vip@cronertaxwise.com to find out more.

Back to Community

VAT Advisor
0844 892 2470

Priyesh has worked as a VAT Compliance Officer for HMRC since 2013 prior to joining Croner Taxwise. He initially worked in Small and Medium Enterprises before moving on to Wealthy & Midsize Businesses in 2014 where he gained a broad understanding of VAT and trained new VAT entrants.

My VIP Tax Team VAT question of the week: VAT position on supplies of digital services
My VIP Tax Team VAT question of the week: Reverse Charge: Purchases of Services from Overseas Suppliers
My VIP Tax Team VAT question of the week: Flat rate scheme interaction with the domestic reverse charge for construction