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HMRC internal manual

VAT Reverse Charge

Introduction: Background

The reverse charge procedure is a measure designed to counter some forms of criminal attack on the UK VAT system by means of fraud, such as Missing Trader Intra-Community (MTIC) fraud (see VATF23300).

The reverse charge procedure results in, essentially, a business-to-business (b2b) tax-neutral chain of transactions, with the seller no longer having to account for VAT, so it removes the opportunity to steal the VAT in b2b transactions within the UK (for an example see VATREVCHG21000). Supplies of relevant goods and services remain subject to the reverse charge until they are excepted from the procedure or are exported or despatched to another Member State.

Whilst the reverse charge effectively removes VAT in a series of b2b transactions, it still has its own revenue risks. For example, a buyer disappearing without accounting for the reverse charge output tax.

The reverse charge for specified goods does not apply universally throughout the EU. Therefore some taxable persons who use the reverse charge might be acting as conduits (taxable persons who facilitate MTIC fraud in the EU (VATF23300), where the tax loss is in another Member State), in which case you should read VATF45300.

The following guidance will be of use when considering the reverse charge:

  • which goods and services the reverse charge applies to (paragraph 3 of Notice 735);
  • supplies excluded from the reverse charge (paragraph 4 of Notice 735);
  • how the reverse charge works (VATREVCHG21000 and paragraph 5 of Notice 735);
  • the de minimis rule (paragraph 6 of Notice 735);
  • what to do if specified goods or services are supplied (paragraphs 7 and 9 of Notice 735 and VATREVCHG22000);
  • what to do if specified goods or services are received (paragraphs 8 and 9 of Notice 735);
  • specific accounting issues, such as adjustments, bad debts etc (paragraph 10 of Notice 735); and
  • the Reverse Charge Sales List (VATREVCHG30000 and paragraph 11 of Notice 735).