UK Reverse Charge
UK reverse charge for non-established companies
We refer to domestic reverse charge for non-established companies when we speak about supplies made by a foreign non-established company of goods that are located in the UK at the moment of the sale. We also refer to this reverse charge in case of a supply of services made by a foreign business when such supply is located in the UK according to special place of supply rules (e.g. services related to immoveable property, catering, or others).
The UK has only introduced a domestic this reverse charge on supplies of services located in the UK.
Where a non-established supplier provides services to a UK business, it is not relevant if the supplier is registered or not.
Not established in the UK
(irrelevant if the supplier is registered or not for VAT)
Customer requirementsVAT registered in the UK
ScopeSupplies of services located in the UK
More information about the scope and VAT treatment of this reverse charge can be found in the online materials published by HMRC.
In case the services supplied by a non-established supplier fall within the scope of construction services as defined by HMRC, you should look at reverse charge on construction services. Special rules apply for this type of reverse charge.
Reverse charge on B2B services in UK
UK businesses receiving services from a non-UK supplier will normally account for VAT under the reverse charge mechanism.
As long as a) the place of supply is the UK, b) the supplier is established outside the UK, c) the client is a UK VAT registered company and the supply is not exempt, reverse charge will apply on these purchases of services.
Among these exceptions, a) place of supply in the UK is often the most controversial.
There are however scenarios in which the place of supply will not be the UK even if a non-UK supplier is supplying services to a UK business client. We refer to these scenarios as exceptions to the general B2B rule, and they include:
- Services connected to immoveable property are located where the property is located.
- Passenger transport services will be located where the transport takes places (apportioned if necessary).
- Catering services are located where the catering takes place.
- Short term leasing of means of transport are located where the vehicle put at the disposal of the customer.
- Access to conferences, fairs and exhibitions is located where the event takes place.
More information on the general B2B rule is available in the online information published by HMRC.
You can find more information about reverse charge on services from abroad in this notice published by HMRC.
UK reverse charge on specific goods
Domestic reverse charge may also apply on certain goods and services in the UK. The conditions and scope change for each type of goods. This regime is often introduced on products that are likely to be used for carousel fraud purposes.
This type of reverse charge applies to mobile phones, computer chips, gas and electricity and emission allowances. In all cases, the customer must be VAT registered in the UK. It does not matter if the supplier is VAT registered or not. There are further conditions about the scope for each kind of supply:
Mobile phones: This includes accessories sold as a package and any device used as a mobile phone. For more information about the definition, please see notice 735.
There is a de minimis threshold of £5,000 for reverse charge on mobile phones to apply. This limit is calculated on an invoice basis and once exceeded, the reverse charge amount is the full invoice amount (the first £5,000 are not excluded).
Computer chips: This includes all computer chips falling in the commodity code: 8542 3190 00. This excludes laptops, desktops, servers and similar units.
Gas and electricity: This applies to wholesale supplies of gas and electricity between counterparties based in the UK. More information about the scope is available in section 3.4. of Notice 735.
Emission allowances: This refers to those compliance market credits which can be used to meet obligations under the EU Emissions Trading Scheme (EUETS)
Construction services: Reverse charge applies on most supplies of construction services in the UK. The conditions, scope, and way of accounting for VAT are explained in the notice published by HMRC about reverse charge in construction services.
Reverse charge on construction services does not apply if the client is considered an end user. A business is considered an end user when it receives construction services but does not make an onward supply of such services. Non-established entities should evaluate if they fall within the category of end users.
Reverse charge on construction services in the UK is linked to Construction Industry Scheme (CIS), a type of withholding tax applicable in the UK. Businesses receiving and providing construction services should evaluate their CIS obligations in addition to the scope of reverse charge for VAT purposes.
Regarding your invoices, they should comply with all UK invoice requirements. VAT will not be charged on the invoice. Instead, a reference to reverse charge should be stated. The following legend is suggested by HMRC:
Customer to account to HMRC for the reverse charge output tax on the VAT exclusive price of items marked reverse charge.
UK use and enjoyment rules
Use and enjoyment rules can deviate the place of supply rules according to the country where the service is effectively consumed. This article explains the meaning and scenarios on which use and enjoyment rules apply.
The UK introduced positive and negative use and enjoyment. That is, when certain services are delivered by a UK business but consumed outside of the UK, the place of supply would be deemed to be outside the UK (positive use and enjoyment). Similarly, when services are supplied by a UK business and consumed in the UK, those services are deemed to be located in the UK (negative use and enjoyment).
The following services are in scope: telecommunication services, broadcasting services, electronically supplied services (to business customers), hired goods and hired means of transport.
Reverse Charge Sales Listing (RCSL) in the UK
The UK authorities require a specific return to be filed by businesses supplying mobile phones or computer chips that are subject to domestic reverse charge on specific goods. This return does not include supplies of other specific goods and services subject to domestic reverse charge. For example, reverse charge supplies on gas and electricity are not included in the Reverse Charge Sales Listing.
Companies making supplies that need to be reported in this return must notify HMRC within 30 days from the day the first reverse charge supply was made. They should also inform the UK authorities in case they stop making such supplies.
If your business only makes purchases of mobile phones and computer chips to which the reverse charge applies, you do not need to submit a RCSL return.
Frequency of filing and due dates
The frequency of filing and due date of RCSL returns follows the VAT return frequency of filing and due dates.
- Businesses filing monthly VAT returns must file monthly RCSL by the same due date as their VAT return
- Businesses filing quarterly VAT returns must file monthly RCSL by the same due date as their VAT return
- Businesses filing annual VAT returns must file monthly RCSL by the same due date as their VAT return
- Businesses filing VAT returns for non-standard periods must file RCSL for those same periods and due dates
Way of filing
The RCSL return is filed electronically using the online system provided by HMRC. Businesses should enroll in the online RCSL return from their online portal.
For each customer to which reverse charge of mobile phones and computer chips have been supplied, the following data must be included in the RCSL return:
- UK VAT registration number of the customer.
- The total net value of reverse charge sales made to that customer in each month. Monthly numbers should be reported even by companies filing quarterly RCSL.
- Contact name and telephone number.
A nil RCSL return MUST be submitted in case there are no transactions reported.
In case inaccurate or wrong information is reported in your RCSL, you need to file a corrective return. If a business has submitted the RCSL using the online HMRC service, you can simply add, delete, or change lines in the form. If the return has been submitted using a CSV file, you will need to resubmit the complete CSV file with the correct data.
Penalties for late RCSL
In case HMRC finds out that you have included incorrect data in your RCSL, you will be fined with a penalty of £100.
If you file a RCSL late, you will be charged with a penalty calculated on a daily basis. There is a maximum of 100 days computed for your penalty. Also, the amount will increase depending as each further default occurs.
The following rates apply:
- 1st time a RCSL is filed late: £5 / day up to a maximum of 100 days
- 2nd time a RCSL is filed late: £10 / day up to a maximum of 100 days
- 3nd and subsequent times a RCSL is filed late: £15 / day up to a maximum of 100 days