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HMRC internal manual

VAT Finance Manual

Other law and policy to consider: reverse charge of financial service received from abroad

The reverse charge applies to UK businesses that receive services, which would be taxable if they were supplied in the UK. They must account for both output tax and input tax. Where a business ‘belongs‘ in the UK; and

  • they receive a relevant service
  • from a person who belongs outside the UK,

then the reverse charge procedure applies. The business receiving such services will - as a customer - debit their VAT account with the output tax on the taxable supply received. At the same time, they will treat the same amount of VAT as input tax to be recovered in accordance with the partial exemption rules (see VAT Notice 706 Partial exemption).

The reverse charge does not apply to services which:

  • if supplied in the UK to a UK customer, would be exempt under Group 5.
  • the business receives from an overseas head office/branch which is part of the same legal entity as the business. Where the overseas head office/branch simply pays for such a service received by the UK business from a third party, the reverse charge will apply.

The reverse charge does apply to certain services received within a VAT group which are bought in by an overseas group member and supplied on either in their own right or as a component in a larger supply, to the UK members of the group (VAT Act 1994, section 43(2A)).

The law relating to the reverse charge is contained in the VAT Act 1994, section 8.

More information on the reverse charge (including a reproduction of the law) can be found in VATPOSS14000.