What is the VAT reverse charge?
Definition of the VAT reverse charge
The reverse charge is how you must account for VAT on services that you buy from businesses who are based outside the UK.
If you are not registered for VAT, the reverse charge will not apply to you.
The reverse charge is the amount of VAT you would have paid on that service if you had bought it in the UK. You have to add that amount to the total of VAT you are going to pay to HMRC that quarter, but also to the amount of VAT you are going to reclaim in that quarter. That means you don't pay anything extra to HMRC or reclaim anything extra from them.
For example, you may have hired a translator in France to translate a webpage for you. If you'd hired someone in the UK to do this work, the cost would have been standard-rated for VAT at 20%. If this service was worth £100, the amount of the reverse charge would be £20, or £100 x 20%.
Read more in our guide to charging and reclaiming VAT.
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FreeAgent's Chief Accountant Emily Coltman is available to answer your questions in the comments.