Reverse charge in the UK 2026
The reverse charge means that the purchaser, not the foreign service provider, settles the UK VAT on the relevant cross-border service.
A foreign invoice isn't enough. First, determine the type of service, the customer's status, the place of provision, and which place of business actually receives the service.
Reverse charge - the most important information
The mechanism primarily operates for cross-border business-to-business services where the place of supply is in the UK and the supplier is based outside the UK.
No UK VAT
Issues a document without any UK tax charged if the customer settles VAT correctly.
Tax due
Calculates VAT at the appropriate UK rate and reports it on your return.
Only to the extent permitted
Input tax is deductible according to the normal rules and not automatically in full.
Not every service
Special rules, exemptions, or inappropriate client status may change the outcome.
How to check if reverse charge applies?
Answer the five questions in order. Going directly to the invoice or declaration fields increases the risk of misclassification.
What service is this?
Determine the actual nature of the performance, even if the contract includes several elements.
B2B or B2C?
Confirm whether the customer is purchasing the service as a business and using it for business purposes.
Where is the place of performance?
Apply the general rule or the appropriate exception for the type of service.
Where do the pages belong?
Check the registered office and place of business most closely related to the service.
Who settles VAT?
If the location is in the UK, the supplier is outside the UK and the conditions are met - VAT is settled by the customer.
The terms of the mechanism are described by HMRC in Notice 741A on place of supply of services and reverse charge.
General B2B Rule and Services for a UK Company
In business-to-business relationships, the place of supply is generally the country where the business customer is located. If the customer is based in the UK, a typical service may be subject to VAT in the UK.
Consulting
A Polish firm advises a British company, and its UK headquarters receives the service. The client can settle VAT.
Marketing
A foreign agency is running a campaign for a British company. First, you need to confirm your business status and the location where you'll receive the service.
IT service
A non-UK supplier provides a service to a UK business. If an exception doesn't apply, the general B2B rule may apply.
How do I confirm a customer's status and place of residence?
The VAT number is important evidence, but it does not always determine where in the structure the customer actually receives the service.
Company or consumer?
Gather your VAT number, registration details, contract, and business purchase confirmation information. Private use only may change the rule.
Headquarters or branch?
Analyze where instructions come from, who uses the result, and where resources related to receiving the service are located.
Business or private?
If a business person purchases a service exclusively privately, do not automatically assume a B2B relationship.
When might a general B2B rule not be enough?
The type of service may shift the place of taxation or change the conditions for applying reverse charge.
Real estate
The location of the property and the range of taxation options may be key.
Events
Event admission and organizational services do not always have the same tax point.
Gastronomy
Restaurant and catering services require verification of the place of actual performance.
Transport and rental
The route, rental length and rules for actual use may be important.
B2C digital services
For consumers, the customer's location and specific electronic rules may change the settlement.
Work on things
For specific relationships, the place of execution and the subsequent movement of the goods are important.
Exempt services
Reverse charge does not apply to exempt services, although exceptions regarding taxation options require attention.
Actual use
Some services can be traced to where they are actually used and consumed.
For a full analysis of the exceptions, please see the guide to place of supply of services and VAT in the UK.
Reverse charge invoice
If VAT is correctly accounted for by a British customer, the foreign service provider does not add British tax to the amount due.
What should be legible?
- supplier and buyer details;
- date of issue and performance of the service;
- a clear description of the service;
- value and currency;
- tax numbers, if required;
- a note indicating that VAT is settled by the customer.
Sample annotation
The document should clearly indicate the mechanism and responsibility of the buyer.
Don't include UK VAT as a seller-input tax "just in case".
General documentation requirements are covered in the UK VAT invoice.
Reverse charge in VAT Return - fields 1, 4, 6 and 7
The UK buyer acts as both supplier and recipient of the same service. The output tax and the deduction should not be automatically recorded as identical amounts.
Tax due
The full amount of UK VAT calculated on the value of the service.
Input tax
Only the amount deductible under normal rules.
Value of the deemed delivery
Full net value of the service in pounds, excluding VAT.
Purchase value
The full net value of the service purchased in pounds, excluding VAT.
| Assumption | Field 1 | Field 4 | Field 6 | Field 7 |
|---|---|---|---|---|
| Net service £10,000, 20% rate, fully deductible | £2,000 | £2,000 | £10,000 | £10,000 |
| Net service £10,000, rate 20%, deductible 60% | £2,000 | £1,200 | £10,000 | £10,000 |
The field rules are confirmed by HMRC in its instructions on how to complete a UK VAT Return. For a full guide to periods and adjustments, see UK VAT returns.
Is reverse charge always neutral?
No. Neutrality depends on the purchaser's right to deduct input tax.
Full right of deduction
The tax due in box 1 and the tax charged in box 4 can be equal. This mechanism does not create a net cost.
Deduction limited to 60%
The full VAT goes into box 1, but only the recoverable portion goes into box 4. The remaining £800 becomes a real expense.
Reverse charge and registration of the service provider and the buyer
The mechanism may limit the obligation of the foreign service provider, but may also affect the registration threshold of the British purchaser.
Only services covered by reverse charge
If all services in the UK are correctly billed to customers, a supplier generally does not register for these services. HMRC indicates that an entity providing only such services is not eligible to register on this basis.
A company without a VAT number
The value of foreign services covered by the general B2B rule must be added to one's own taxable sales when determining the registration threshold. The obligation may arise even without any such sales.
The official rules for non-residents are described in VAT Notice 700/1 on registration.
Services received from foreign suppliers
The absence of VAT on the document does not mean there is no obligation. Assign each foreign service to a specific rule and settlement period.
- country and status of supplier;
- actual type of benefit;
- B2B or B2C status;
- place of receipt and use of the service;
- general or special rule;
- applicable rate in Great Britain;
- conversion rate to GBP;
- VAT date and period;
- scope of the right to deduct;
- fields 1, 4, 6 and 7 VAT Return.
Cross-border reverse charge and domestic reverse charge
A common name does not imply identical scope. First, determine whether the transaction is an international service or a designated domestic delivery.
Cross-border services
- the supplier is located outside the UK;
- the place of supply is in the UK;
- VAT is settled by the British buyer;
- net value also goes into box 6.
Domestic reverse charge
- applies to selected domestic goods or services;
- has its own industry and transaction terms;
- is not a consequence of the supplier's foreign status alone;
- the way it is included in the declaration differs, among others, in field 6.
The most common mistakes when making a reverse charge
An error in the classification of a service affects the invoice, rate, declaration and assessment of the registration obligation.
Every foreign invoice
The mechanism is applied without specifying the type of service and place of provision.
Missed exception
The B2B general rule replaces the property, event, transportation or use analysis.
Bad customer place
The registered office is accepted automatically even though the service is received by a foreign branch.
No annotations
The invoice does not indicate that the obligation to settle VAT is transferred to the customer.
Field 4 without field 1
The buyer deducts VAT but does not report the tax due.
Assumed neutrality
The full deduction is recorded despite exempt activity or mixed use.
No threshold control
An unregistered company misses the value of the general B2B rule services when examining registration.
Confusion of mechanisms
Cross-border reverse charge is settled according to the rules of domestic reverse charge.
Build a service matrix before posting invoices
A good matrix combines the business name of the service with the place of supply rule, evidence, rate, and reporting method.
Classification
The contract description, invoice and actual scope must indicate the same service.
Evidence
Assign documents confirming the customer's status and place of receipt to each rule.
Accounting
Save the rate, exchange rate, period and declaration fields before approving the document.
Reverse charge requires analysis of the service before analysis of the invoice
In a cross-border B2B service, the place of supply may be in the UK, and the UK buyer then settles the tax. The supplier does not charge UK VAT, the customer reports the correct amounts in boxes 1, 4, 6, and 7, and full neutrality depends on the right of deduction.
1. Service and Status
Confirm classification and B2B or B2C relationship.
2. Place of performance
Check the general rule, exceptions and where to receive it.
3. Invoice and declaration
Select the annotation, rate, exchange rate and VAT Return fields.
Reverse charge in the UK - frequently asked questions
No. First, you must determine the nature of the service, the customer's status, the place of provision, and any special rules.
No, if the buyer settles the tax correctly. The document should indicate the reverse charge and the customer's liability.
For international services, the tax due goes to box 1, the input tax to the extent of the deduction goes to box 4, and the full net value goes to boxes 6 and 7.
No. In the case of exempt activity, mixed activity or non-business use, part of the tax may not be deductible and will become an expense.
Not for services themselves that are correctly billed by UK customers through reverse charge. However, other services taxed in the UK may require registration without the threshold.
No. This is a separate mechanism for designated domestic goods and services, with its own terms and reporting method.
Yes. The value of services covered by the general B2B rule received from overseas suppliers is added to your own taxable supplies when assessing the UK registration threshold.
It may work. HMRC points out that if the supplier is still based outside the UK, a UK VAT number alone does not exclude the buyer's liability.
This text is for informational purposes only and does not replace an individual tax analysis. When applying for a reverse charge in the UK, you must verify the type of service, B2B or B2C status, place of supply, place of ownership of the parties, applicable rate, invoice, exchange rate, right of deduction, and VAT Return fields.
