Measure
The government will restrict the VAT reverse charge for supplies of services from overseas suppliers to UK businesses, so that the reverse charge mechanism applies only where the receiving UK business is VAT registered. Where a UK business receiving the services is not VAT registered, the overseas supplier will instead be required to charge and account for UK VAT directly, rather than the liability shifting to the UK recipient.
This follows a call for evidence on VAT and the sharing economy, which HMRC published in December 2020. HMRC published the summary of responses in July 2021.
UK businesses that are not VAT registered and receive services from overseas suppliers, and the overseas suppliers of those services, who will take on a new UK VAT registration and accounting obligation.
The change takes effect from April 2027.
Shifting the VAT compliance burden from the UK recipient to the overseas supplier where the UK business is not VAT registered is intended to address a gap through which VAT is not accounted for on some services bought by small, unregistered UK businesses. It may also simplify VAT compliance obligations for both UK recipients and overseas suppliers.
UK businesses below the VAT registration threshold that buy in services from overseas should expect their suppliers to begin charging UK VAT on those supplies from the effective date. However, moving the VAT charging obligation to the overseas supplier removes the need to monitor and self-account for VAT on these purchases.