Policy paper

Reform of the business to business reverse charge for supplies of services from overseas

Published 28 October 2026

Who is likely to be affected

Non-VAT registered businesses who purchase services from overseas, and the suppliers of those services. 

General description of the measure 

The reverse charge applies when an overseas business supplies services to a UK business customer. Instead of the supplier charging UK VAT, the purchasing business is responsible for accounting for that output VAT on its own VAT return.

This means when the purchasing business is not VAT registered (and the supply is not one to which special place of supply rules apply), no VAT is due on the supply. In such circumstances, the purchasing business must add the value of its overseas purchases to the value of its supplies for the purposes of calculating whether it is required to register for VAT. 

This measure will mean that the reverse charge only applies when the purchasing business is actually registered for VAT in the UK. Where the purchasing business is not VAT registered, the supplier will be required to charge VAT to the customer and account for it to HMRC. 

Policy objective 

This measure satisfies two policy objectives. 

First, it removes an inconsistency where no VAT is payable on certain transactions, effectively enabling unregistered businesses to gain a tax advantage by using an overseas supplier, thereby levelling the playing field for UK suppliers. 

Second, it simplifies the VAT system for small businesses operating below the VAT threshold in the gig or sharing economy that operate via a platform, including peer-to-peer lending, ride sharing and short-term rental accommodation, where in many cases they may not be aware that the platform is not based in the UK.

It also provides a simplification for overseas suppliers, as they will only need to check for their customers’ VAT number when considering whether to charge VAT or apply the reverse charge, rather than having to consider any other evidence as to whether their customer is a business or not as they do currently. 

Background to the measure 

HMRC published a call for evidence on VAT and the sharing economy in December 2020, seeking input on a variety of different options. 

Detailed proposal 

Operative date 

The measure will take effect from 1 April 2027. 

Current law  

Reverse charge on overseas services is included in Section 8 of the Value Added Tax Act 1994. 

Proposed revisions 

Subsection 2 of section 8 sets out the conditions for when the reverse charge applies. One of those conditions is that, where the supply is one of the services listed in Schedule 4 of the VAT Act (the special place of supply rules), the recipient of the supply is registered for VAT. This will be amended so that the condition applies to all services, not just those listed in Schedule 4. 

Summary of impacts 

Exchequer impact (£ million) 

2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030	2030 to 2031	2031 to 2032
—	+70	+75	+75	+75	+75

These figures are set out in Table 6.1 of Budget 2026 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2026.

Economic impact 

This measure is not expected to have any significant macroeconomic impacts. 

Impact on individuals, households and families 

This measure is expected to have no impact on individuals, households or families as it only affects businesses. 

Equalities impacts 

This measure impacts non-VAT registered businesses who purchase services from overseas. The majority of businesses impacted are companies, however some of the businesses impacted by this measure will be sole traders.   

This measure may apply to individuals regardless of their protected characteristics. HMRC does not hold data that it can use to assess whether there are any disproportionate impacts to protected groups. 

Administrative impact on business including civil society organisations 

This measure is expected to have a negligible administrative impact on both non-VAT registered UK businesses who purchase services from overseas, and on overseas suppliers. The cost of such purchases will increase for non-VAT-registered UK businesses, as suppliers will be required to charge VAT rather than leaving it for the purchaser to account for the VAT under the reverse charge. 

One-off costs for non-VAT-registered UK businesses will include familiarisation with the change. One-off costs for overseas suppliers include familiarisation with the change, updating published guidance, registering for VAT if not already registered to sell to UK consumers and updating invoicing software. 

Ongoing costs for overseas suppliers who register for VAT include keeping extra records, submitting VAT returns to HMRC and paying VAT to HMRC. Ongoing savings for overseas suppliers include simplifying the evidence they need to consider when deciding whether to charge VAT or apply the reverse charge on purchases by UK customers, as they will only need to check for their customers’ VAT number.  

This measure is not expected to affect civil society organisations. 

Operational impact (£ million) (HMRC or other) 

No operational impacts. 

Other impacts 

Other impacts have been considered and none have been identified. 

Monitoring and evaluation 

This is a small measure, so we will apply existing proportionate monitoring to support compliance. 

Further advice 

If you have any questions about this change, contact Peter Rowe, VAT Principles by telephone on 03000 530933 or by email at peter.rowe@hmrc.gov.uk.