VQOTW: Domestic Reverse Charges

I have recently been reading up about the domestic reverse charge for construction services which comes in in October 2019, including the helpful VQOTW (14 June 2019), but this has got me wondering whether there are any other reverse charges in the UK I should be aware of, and why they are increasingly being used by HMRC?

Reverse charges in the UK fall into two categories; those designed to simplify VAT compliance/reporting, and those designed to protect the revenue.

The reverse charge most businesses will be familiar with is the one applied to cross border services. This is a measure implemented across the EU as a simplification measure, saving businesses providing services to business customers who do not belong in their own EU Member State from having to VAT register in every country in which they have customers.

The general rule for most business-to-business (B2B) services is that they are deemed to be supplied where the customer belongs.    We are not looking in detail at the place of supply rule in this article, but information on B2B services can be found in Section 6 of Notice 741A Place of Supply of Services, and paragraph 6.4 of the same notice also provides details of services falling outside the general rule.  If you have any questions about the place of supply of services supplied or received by your clients, please call our VAT Advice Line.

Where a business customer in the UK (whether VAT registered or not) receives B2B general rule services from a supplier in another EU Member State or indeed another country outside the EU, it is the customer’s responsibility to account for any VAT due in the UK.  If the customer is already VAT registered, the transaction is reported on their VAT return as both a sale and a purchase.  See VAT Notice 741A section 5 for details.     Similarly, where a UK supplier provides B2B general rule services to customers in the EU, the responsibility to account for any VAT due will lie with the customer.

The reverse charges designed to protect the revenue are a consequence of significant VAT losses experienced by HMRC and Tax Authorities across the EU.  The VAT domestic reverse charge is explained in Notice 735 by HMRC as “an anti-fraud measure designed to counter criminal attacks on the UK VAT system by means of sophisticated fraud.”    You may be aware of the terms MTIC (Missing Trader Intra Community) or Carousel Fraud.  In very simple terms MTIC fraud involves goods initially purchased VAT free by a UK VAT registered business from another EU Member state, supplied on with VAT added to another VAT registered business in the UK.  The supplier receives payment of the VAT from the customer but goes missing before paying the VAT collected over to HMRC.

The original fraud centered on supplies of small but high-value goods, such as mobile phone and computer chips,  but the same principles of charging VAT and disappearing before paying it over to HMRC have continued to be been applied by criminal gangs to other supplies of goods and services.

The domestic reverse charge applies only to supplies between VAT registered suppliers and VAT registered customers in a similar way to the cross border simplification reverse charge. VAT is not charged or collected by the supplier on the affected supplies. The customer accounts for VAT on his or her own VAT return as both a sale and a purchase.  There is simply no VAT for the supplier to disappear with.

The specified supplies to which the domestic reverse charge applies are listed in Section 3.1 of Notice 735.   Supplies of mobile phones and computer chips were affected with effect from 1 June 2007; wholesale gas and electricity from 1 July 2014; emission allowances from November 2010; wholesale telecoms from1 February 2016;  renewable energy certificates from 14 June 2019;  building and construction services come into effect from 1 October 2019.


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Senior VAT Consultant
0844 892 2470


Hilary has worked in VAT since 1997, including five years with HMRC as an Assurance and Enquiries Officer. She spent eight years as a VAT manager, initially with a mid-tier accountancy firm, followed by six years with PricewaterhouseCoopers.

She has both advisory and compliance experience, working with a wide variety of clients ranging from small owner-managed businesses, to not-for-profit organisations and large multinational corporations, on the full range of VAT technical matters.

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