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Important: This information gives you an overview of the reverse charge procedure for services which has been in effect since 1 January 2010. Refer to the HMRC notices mentioned below for full details.
The Reverse Charge for services provisions includes new measures to simplify the rules for cross-border supplies of services in the European Community (EC) and the recovery of VAT on purchases made in other EC countries.
Her Majesty’s Revenue and Customs (HMRC) also refers to this as the 'tax shift’ because the onus for accounting for VAT for intra-EC services on the VAT Return shifts from the service provider to the customer. In effect, VAT registered businesses that receive intra-EC services must account for these transactions on the VAT Return and in the Nominal Ledger as both the supplier and customer of the service.
For full and detailed information about how you may be affected by the reverse charge for services requirements, you should refer to these resources on the HMRC web site.
HMRC Notice |
Title |
Description |
|---|---|---|
BN74 |
Cross-Border VAT changes 2010: Place of Supply of Services Rules |
This notice explains the changes to the place of supply for cross-border supplies of services. Details of new reverse charge VAT details for services including new tax point definitions can also be found at www.hmrc.gov.uk/vat/cross-border-changes-2010.htm. |
BN75 |
Cross-Border VAT changes 2010: Time of Supply Rules |
This notice explains the changes to the time of supply for cross-border supplies of services. |
BN76 |
Cross-Border VAT changes 2010: EC Sales Lists |
This notice explains the requirement for UK businesses that
supply services where the place of supply is the customer's country
to complete the ESL report.
Details of the changes and the qualification criteria for submitting ESLs can also be found at www.hmrc.gov.uk/vat/ec-sales-lists.pdf. This includes details of the new format for the EC Sales List, new reporting frequencies, and shorter deadlines for reporting. |
BN76 |
Cross-Border VAT changes 2010: VAT Refund Procedure |
This notice explains the electronic VAT refund procedure that replaces the paper-based system from 1 January 2010. |
The Reverse Charge provisions apply to transactions between VAT registered businesses in different EC countries that are subject to the reverse charge for services mechanism.
You must contact HMRC to find out whether you are affected by these provisions, which are covered by Article 196 of Council Directive 2006/112/EC.
Supplies which are exempt from VAT according to the rules in the customer's Member State
Supplies covered by Article 194 of Council Directive 2006/112/EC
Business to business supplies where the recipient is not VAT registered
Business to consumer supplies.
The customer of the service must update their VAT Return as though they are both the customer and supplier. The supplier of the service must update both the VAT Return and the EC Sales List.
Customers of intra-EC service transactions |
Businesses that receive services must include these purchases on the VAT Return in Box 1 (VAT due on sales), Box 4 (VAT due on purchases), Box 6 (total value of sales), and Box 7 (total value of purchases) using the standard rate of VAT. |
Suppliers of intra-EC service transactions |
Businesses that provide services must include these sales on their VAT Return in Box 6 only (total value of sales) using a zero-rated VAT code, and also on the EC Sales List separately from goods. |
HMRC require that the VAT Control Account in the Nominal Ledger is updated with the output tax and input tax. Partial exemption implications for reverse charge services are explained in HMRC Notice 706 Partial exemption.
Dr |
Cr |
|---|---|
The amount of the Input VAT you are normally entitled to account for. |
The amount of the Output VAT calculated on the full value of the intra-EC supply of services. |
The time of supply, or the tax point, determines when VAT is to be accounted for.
The tax point for single services is either when the service is completed or when it is paid for, whichever is earlier
The tax point for continuous services is the end of the billing period. So if a customer is billed for the services monthly, the tax point is the end of that month.
The EC Sales List includes the supply of goods between VAT registered businesses in EC countries and also the supply of services if the business transaction is subject to the Reverse Charge. The business that provides the service must submit the EC Sales List to HMRC.
The EC Sales List must also include this information for services transactions:
The VAT registration number of the businesses that received the service
The total value (excluding VAT) of those supplies for each customer
The indicator '3' for services.
The default reporting frequency for the EC Sales List will be monthly for services, and for goods over a specified threshold. Businesses may be able to opt to submit quarterly EC Sales Lists for services.