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HMRC internal manual

VAT Traders’ Records Manual

Issue of VAT invoices for supplies of specified goods subject to the ‘reverse charge’ accounting mechanism

The reverse charge procedure only applies to sales within the UK where specified goods are purchased by a VAT registered business for business purposes. Certain supplies of specified goods are unaffected by the procedure and the normal VAT rules apply.

Under the reverse charge procedure, the purchaser of the goods rather than the seller is liable to account for the VAT on the sale. The supplier should not charge VAT, but has to specify on the invoice that the reverse charge applies. Purchasers who have correctly declared output tax under the reverse charge procedure are entitled to input tax recovery subject to the normal rules. Output tax chargeable under the reverse charge procedure and corresponding input tax should be entered in the same return subject to normal tax point rules.

As defined in the VAT (Section 55A) (Specified Goods and excepted Supplies) Order 2007, business-to-business supplies of mobile telephones and computer chips are subject to the reverse charge provisions.

When making a sale to which reverse charge accounting applies, suppliers must show all the information normally required to be shown on a VAT invoice and must also annotate the invoice to make it clear that the reverse charge applies and that the customer is required to account for the VAT.

The amount of VAT due under the reverse charge rules must be clearly stated on the invoice but should not be included in the amount shown as total VAT charged. The precise wording is not prescribed in law and discussions with business have highlighted the need to keep the annotation short.

Suggested forms of words are:

  • Customer to pay output tax of £X to HMRC
  • UK customer to pay output tax of £X to HMRC

Alternatively, any of the following would also be acceptable, provided that the amount of VAT is shown elsewhere on the invoice, but not in the box for total output tax charged:

  • VAT Act 1994 section 55A applies
  • S55A VATA 94 applies
  • Customer to account for VAT to HMRC
  • Reverse charge supply - customer to pay the VAT to HMRC
  • Customer to pay VAT to HMRC
  • UK customer to pay VAT to HMRC

If the seller produces invoices using an IT system, and that system cannot show the amount of tax to be accounted for under the reverse charge mechanism, then the wording on the invoice should state that VAT is to be accounted for by the purchaser at 20% of the VAT exclusive selling price for reverse charge goods. However, the customer must be able to identify the reverse charge goods, for example:

  • Customer to account to HMRC for the reverse charge output tax on the VAT exclusive price of items marked ‘reverse charge’.

In an electronic invoicing environment, provided that both parties to the electronic invoicing exchange agree, the indication that the goods are subject to the reverse charge, and that the customer is required to account for output tax on such goods, can be provided in the invoice message in coded representation provided that its meaning can be demonstrated to an HMRC auditor by both parties to the electronic invoicing exchange.