Don’t get caught out by the VAT reverse charge

Many of our clients are affected by the place of supply rules, which have been changing in stages since 2010. For example, if you receive digital services from overseas (eg, web services, downloaded content, subscriptions, Google or any other advertising, telecommunication services etc) then the place of supply is where the customer is – i.e. you. Why does this matter?

1. If you are VAT registered, then you have to implement the reverse charge. This basically means that if, say, you received services of £100 (no VAT charged because overseas), then you should put an extra £20 in output tax for the quarter and an extra £20 in input tax for the quarter. So if you are not fully taxable, then there is a cost – some of the input tax will not be reclaimed because of the partial exemption calculation.

2. If you are not VAT registered then it still matters, because the amount of the supply contributes to the registration threshold. So for example if an unregistered charity has taxable supplies of £70k and receives overseas electronic services of £15k, then it has exceeded the compulsory registration threshold (currently £82k).