Purchase services from an overseas business with reverse charge VAT (UK)

How to record the purchase of a service from an overseas business based inside or outside the EU, using Reverse Charge VAT.

For example buying advertising space from businesses such as Google or Facebook who are based in Ireland.

Overview for businesses in the UK

When you purchase services from overseas, import VAT is not charged but you still need to declare it on your VAT return. This is done using reverse charge VAT

We apply the reverse charge automatically, so you can be sure the VAT is recorded correctly on your VAT return. To help us work out where reverse charge needs to be used, check the following:

  • Supplier contact record

    • include the correct country on the address

    • Add a VAT registration number.

  • Purchase invoice

    • Select the Services (standalone) indicator on each item line.

    • Select the VAT rate you would use if buying the service in the UK for each relevant item line.

For more information see HMRC guide to reverse charge VAT

Check your supplier contact record

Make sure your supplier record has the correct country and a VAT registration number set on their supplier record.

In our example, the supplier record for Google would have the address set to Ireland.

  1. From Contacts, choose Suppliers and then the relevant supplier, such as Google.

  2. From Addresses, make sure the country is set correctly, such as Ireland.

  3. From Options, check that the Supplier 's VAT number is included.

  4. Save your changes.

Record the purchase invoice

  1. From Purchases, choose Purchase Invoices, and then New Invoice.

  2. Choose the relevant supplier record, such a Google.

  3. On the first invoice line, select a service from the list ( if you have a set up service record) or enter a Description.

  4. Select the relevant ledger account and enter the price.

  5. From Goods/Services select Services (standalone).

  6. Change the VAT rate to the rate that you would apply if the purchase was made in the UK, such as the Standard or Lower rate. In our example, we would choose the Standard VAT rate.

    The VAT amount will show as zero but is still recorded on the VAT return.

  7. Repeat these steps 3 to 5 on a new lines for as many items as you need to add to your invoice.

  8. Save the invoice.

How reverse charge reports on the VAT return

The VAT is recorded as both a sale and purchase on your VAT return, effectively cancelling each other out.

If you have selected Standard or Lower Rate, the VAT amount shows in

  • Box 1 - VAT due in this period on sales and other outputs

  • Box 4 - VAT reclaimed in this period on purchases and other inputs.

The net amount shows in

  • Box 6 - Total value of sales excluding VAT

  • Box 7 - Total value of purchases and all other inputs excluding any VAT.