What is the VAT reverse charge in the UK?

It is a mechanism where the customer, rather than the supplier, accounts for the VAT. The supplier invoices without VAT; the customer declares the VAT in Box 1, reclaims it in Box 4, and records the net value in Boxes 6 and 7. For a fully taxable business the net VAT effect is nil.

Do I have to reverse-charge VAT on services from abroad?

If you are a UK VAT-registered business buying most business services from an overseas supplier, yes — the supply is treated as made in the UK and you account for the VAT yourself. This does not apply to exempt or zero-rated services, or within the same legal entity. The value also counts toward the £90,000 registration threshold.

How does the construction reverse charge work?

Since 1 March 2021, most CIS-reported construction services between two VAT-registered UK businesses are reverse-charged: the subcontractor invoices without VAT, and the contractor accounts for the VAT in Box 1 and reclaims it in Box 4. An end user (not selling the services on) receives normal VAT invoices, but only if it notifies the supplier in writing.

Which goods are subject to the reverse charge?

Specified goods and services include mobile phones and computer chips (with a £5,000 VAT-exclusive per-invoice de minimis), emissions allowances, wholesale gas and electricity, wholesale telecommunications, and renewable energy certificates. Construction services are covered by the separate domestic construction reverse charge.

Which VAT return boxes do I use for the reverse charge?

Declare the VAT as output tax in Box 1, reclaim the same amount as input tax in Box 4 (subject to your recovery position), and enter the net value in Box 6 (sale) and Box 7 (purchase).

Why does the reverse charge exist?

It is an anti-fraud measure against "missing trader" (carousel) fraud, where a trader collects VAT and disappears without paying HMRC. Because the supplier never invoices VAT under the reverse charge, there is nothing for a fraudulent trader to abscond with.

VAT Reverse Charge Explained (UK)

Normally, VAT follows a familiar pattern: the supplier charges VAT on the invoice and pays it to HMRC, while the customer reclaims it. The reverse charge turns this around — the customer accounts for the VAT instead of the supplier. The supplier invoices without VAT, and the customer declares the VAT and reclaims it on the same return.

The name sounds like a single special rule, but in the UK it is really three separate families of rules, each with its own legal basis, scope and traps: services received from abroad, the domestic construction reverse charge, and the reverse charge on specified goods and services.

2026/27 context: the standard UK VAT rate is 20%, with 5% and 0% rates for specific supplies, and the VAT registration threshold is £90,000 of taxable turnover.

How the reverse charge works

The mechanism is the same in every family, so it is worth getting it straight first:

The supplier invoices without VAT (net only), stating on the invoice that the reverse charge applies.
The customer declares the VAT as output tax in Box 1 of their VAT return.
The customer reclaims the same amount as input tax in Box 4 — where their recovery position allows.
The net value is entered in Box 6 (as a sale) and Box 7 (as a purchase).

For a fully taxable business, the Box 1 and Box 4 entries cancel, so the net VAT effect is nil. But where a customer is partially exempt or not VAT-registered, the cancellation does not happen — the Box 1 VAT becomes a real cost. Understanding which family applies matters far more than the mechanics.

Family 1: services received from abroad

Under the general B2B place-of-supply rule (section 8 of the VAT Act 1994; VAT Notice 741A), services supplied by an overseas business to a UK business customer are treated as supplied in the UK, so UK VAT is due. HMRC cannot easily collect from a supplier with no UK presence, so the UK customer reverse-charges: it declares the VAT in Box 1 and reclaims it in Box 4. This covers almost all business services bought from abroad — software subscriptions, advertising, consultancy, cloud hosting, design and legal advice.

Two limits apply. The reverse charge does not apply to exempt or zero-rated services (insurance, most finance, health), and it does not apply within the same legal entity — transactions between branches of one business are not supplies between separate businesses.

The threshold trap

The value of reverse-charged services received counts toward the £90,000 VAT registration threshold — a business can breach it on overseas services spend alone. An agency with £70,000 of UK sales and £25,000 of US software and advertising services has taxable turnover of £95,000 and must register, even though it thought it was safely below the threshold. Miss this and you can owe backdated VAT, interest and penalties. Track overseas services spend against the threshold alongside your UK sales.

Family 2: the domestic reverse charge for construction

Since 1 March 2021 (section 55A of the VAT Act 1994), most CIS-reported building and construction services between two UK VAT-registered businesses are reverse-charged. The subcontractor invoices WITHOUT VAT, stating on the invoice that the reverse charge applies (e.g. "Reverse charge: VAT Act 1994 Section 55A applies") and showing the VAT rate that would have applied. The contractor accounts for the VAT in Box 1 and reclaims it in Box 4.

Subcontractors must know when to leave VAT off the invoice, and contractors must know when to self-account — getting it wrong either way creates VAT return errors.

The end user exception — and the written-notification rule

The key exception is the end user: a customer receiving construction services for its own use — not selling them on — receives normal VAT invoices. But the exception only works if the end user notifies the supplier IN WRITING before the supply. No written notification, no exception. A verbal "we're the end user" does not count. It costs nothing to get right: a short written statement, even by email, before the work is invoiced.

Exclusions and mixed supplies

The reverse charge does not apply to supplies by employment businesses supplying staff, architects, surveyors and other professional consultants, drilling for or extracting oil and gas, manufacturing building components, or the installation of security systems, CCTV, seating, blinds and shutters and signwriting. These are invoiced with VAT as normal.

On mixed supplies, a reverse-charge element of 5% or less of the total invoice may be disregarded, so the whole invoice is treated under normal VAT rules. Above that, the two parts must be treated separately.

Family 3: specified goods and services

The third family is the reverse charge on specified goods and services (VAT Notice 735, section 55A), built up over the years — each entry added to fight a specific fraud:

Mobile phones and computer chips — from 1 June 2007, with a £5,000 VAT-exclusive de minimis per invoice: supplies at or above £5,000 (ex VAT) are reverse-charged; smaller supplies are invoiced normally.
Emissions allowances — from 1 November 2010.
Wholesale gas and electricity — from 1 July 2014.
Wholesale telecommunications — from 1 February 2016.
Renewable energy certificates — from 14 June 2019.
Construction services — from 1 March 2021 (the Family 2 regime).

The common thread is wholesale, high-value, easily traded goods and services — the natural habitat of the fraud these rules target.

Why it exists: missing trader fraud

Every one of these rules is an anti-fraud measure against "missing trader" fraud (carousel fraud). In this fraud, a trader charges VAT, collects it from the customer, and disappears without paying HMRC — then reappears in another chain and repeats the pattern.

The reverse charge defeats it by removing VAT from the supplier's invoice entirely: the supplier never collects the VAT, so there is no VAT to abscond with. The customer accounts for it and reclaims it on the same return, so honest businesses are unaffected while the fraud opportunity disappears.

Worked examples: the reverse charge in £ figures

Example 1: wholesale mobile phones — £6,000 sale

A VAT-registered wholesaler sells £6,000 of mobile phones to a VAT-registered retailer. This exceeds the £5,000 per-invoice de minimis, so the reverse charge applies.

The wholesaler invoices £6,000 with no VAT, stating the reverse charge applies.
The retailer declares £6,000 × 20% = £1,200 in Box 1 and reclaims £1,200 in Box 4.
The retailer enters £6,000 in Box 6 and Box 7.
Net VAT effect for the retailer: nil.

If the retailer were only partially exempt, the Box 4 reclaim would be restricted and the Box 1 charge would be a real cost.

Example 2: construction subcontractor — £10,000 of work

A VAT-registered subcontractor invoices a VAT-registered contractor £10,000 for CIS work that is not excluded.

The subcontractor invoices £10,000 net with "Reverse charge: VAT Act 1994 Section 55A applies" and the 20% rate shown.
The contractor accounts for £10,000 × 20% = £2,000 in Box 1 and reclaims £2,000 in Box 4.
The contractor records £10,000 in Boxes 6 and 7.

Contrast an end-user scenario: if the customer is the property owner using the work for its own building and has notified the subcontractor in writing, the invoice is simply £10,000 + £2,000 VAT = £12,000 — the reverse charge does not apply.

Example 3: overseas services and the threshold — £25,000 of US services

An agency has £70,000 of UK sales, is not VAT-registered, and spends £25,000 a year on US software and advertising services.

The agency should reverse-charge on each overseas invoice (a nil exercise once registered, but required).
Its taxable turnover is £70,000 + £25,000 = £95,000 — above the £90,000 threshold.
It must register for VAT.

Reverse charge: the VAT return boxes at a glance

What to record	VAT return box
VAT accounted for under the reverse charge (output tax)	Box 1
Same VAT reclaimed as input tax (subject to recovery rules)	Box 4
Net value of the supply, treated as a sale	Box 6
Net value of the supply, treated as a purchase	Box 7

Conclusion

The UK VAT reverse charge is three regimes sharing one mechanism: the customer, not the supplier, accounts for the VAT. Overseas services are reverse-charged by the UK customer — and that spend counts toward the £90,000 threshold. Construction services between VAT-registered businesses have been reverse-charged since 1 March 2021, with the end user's written notification as the key exception. And specified wholesale goods and services carry the reverse charge as a targeted anti-fraud measure.

The practical takeaways: track overseas services spend against the threshold; get construction invoice wording right and never skip the end-user written notification; and know the £5,000 per-invoice de minimis for phones and chips. The reverse charge costs a fully taxable business nothing in net VAT, but its formalities are not optional — errors here mean unexpected registrations, penalties and VAT return corrections.

VAT Reverse Charge Explained UK: The Three Types You Must Know