Many UK businesses are still confused about when to use reverse charge VAT, especially post-Brexit. Getting it wrong could lead to HMRC fines, compliance issues, or denied input tax claims. This guide explains everything: what reverse charge VAT means, when it applies, and how to file VAT returns without costly mistakes.
What Is Reverse Charge VAT?
The reverse charge mechanism is a VAT rule where the responsibility to report and pay VAT shifts from the supplier to the buyer. This is designed to:
- Reduce VAT fraud, especially in sectors like mobile phone and chip trading
- Simplify cross-border VAT compliance
- Ensure correct VAT collection in the buyer’s jurisdiction
In this setup, the supplier does not charge VAT. Instead, the buyer calculates the VAT due and reports it as both input and output tax in their VAT return. For most VAT-registered buyers, this results in a neutral cash flow impact but ensures visibility for tax authorities.
When Does Reverse Charge VAT Apply?
Here are the key scenarios where UK businesses encounter reverse charge VAT:
1. Cross-Border EU Transactions (Pre-Brexit Context)
Before Brexit, if a French business supplied goods/services to a German VAT-registered company, the invoice would follow the reverse charge mechanism. The buyer accounted for the VAT in Germany.
2. Post-Brexit UK Imports
UK businesses importing goods or services from the EU or other countries must now apply the reverse charge. This includes digital services, consultancy, and other business-related services.
3. Domestic Reverse Charge for Construction
Under the Construction Industry Scheme (CIS), subcontractors do not charge VAT to main contractors. Instead, the main contractor accounts for VAT on their VAT return.
4. High-Risk Sectors
The reverse charge applies to goods and services prone to VAT fraud, such as:
- Precious metals
- Mobile phones
- Computer chips
- Emissions allowances
How to Issue a Reverse Charge Invoice
If you’re a supplier using the reverse charge mechanism, your invoice must:
- Not include VAT
- State: “Reverse charge – customer to account for VAT”
- Include the buyer’s VAT number
- Provide all normal invoice details (description, net value, invoice date, etc.)
Example: Reverse Charge Invoice with Multiple VAT Rates
| Description | Net (£) | VAT Rate | VAT (£) | Gross (£) |
|---|---|---|---|---|
| Refurbishment of commercial premises | 200,000 | 20% | Reverse charge applies | 200,000 |
| Conversion of an office block to residential housing | 150,000 | 5% | Reverse charge applies | 150,000 |
| Total | 350,000 | 350,000 |
Note: The supplier does not charge VAT. Instead, the customer is required to account to HMRC for the VAT on the total amount using the correct VAT rates (20% and 5% in this case). The invoice must clearly indicate “Reverse charge applies” beside each applicable line item.
Download Sample: Reverse Charge VAT Invoice Example (PDF)
Reverse Charge VAT for Buyers in the UK
If you’re the buyer:
- You receive a VAT-free invoice
- You report both output and input VAT on your return
- You can reclaim VAT if you’re fully VAT-registered
Exceptions:
- If you’re partially exempt, you may not reclaim the full VAT amount
- Non-VAT registered businesses cannot reclaim VAT at all
UK Reverse Charge VAT Rules After Brexit
Post-Brexit, the UK retained the reverse charge mechanism for:
- EU imports
- Domestic construction services (CIS)
- Fraud-prone goods and services
It’s essential to verify your customer’s VAT and CIS status before applying these rules. HMRC expects strict compliance and record-keeping.
Required Records and MTD Compliance
To stay compliant with UK VAT law:
- Retain reverse charge invoices and customer VAT numbers
- Use MTD (Making Tax Digital) software to file VAT returns
- Record each transaction in your digital VAT account
Benefits of the Reverse Charge System
- Reduces exposure to fraud
- Simplifies international and domestic VAT compliance
- Avoids unnecessary VAT registration in foreign jurisdictions
- Increases transparency and accuracy in VAT records
Conclusion: Understanding reverse charge VAT is essential for staying compliant and protecting your UK business from costly mistakes. Whether you’re dealing with cross-border purchases, subcontracted construction work, or high-risk goods, knowing when and how to apply the reverse charge will help you avoid penalties and streamline your VAT process.
Frequently Asked Questions
Reverse Charge VAT applies in cases like EU and non-EU imports, domestic construction services under the CIS scheme, and transactions involving fraud-prone goods such as electronics and emissions allowances.
Do not add VAT to the invoice. Mention “Reverse charge – customer to account for VAT” and include the buyer’s VAT number. Also, provide standard invoice details like date, net amount, and item description.
After Brexit, UK businesses use reverse charge VAT for EU imports, certain B2B services, and domestic construction. You must confirm if your UK buyer is an end user or intermediary to apply the correct VAT rule.
No, Certain services like architecture, oil drilling, artistic work installations, and signwriting are exempt from reverse charge VAT. These should be invoiced using normal VAT rules.
The applicable VAT rate, typically 20% in the UK, remains the same under the reverse charge mechanism. However, instead of the seller charging it, the buyer reports the VAT as both output and input tax in their VAT return.