UK proposes restricting overseas-services reverse charge to VAT-registered customers

The proposal targets an existing distinction between registered and unregistered business recipients. HMRC says an unregistered customer can currently receive certain overseas services without VAT being accounted for, although the purchases enter its registration-threshold calculation. Under the proposed approach, an overseas supplier would need to consider charging and accounting for VAT where its customer is not UK VAT registered.^[1]

Section 8 of the Value Added Tax Act 1994 governs the reverse charge. Subsection (2) currently requires a UK relevant-business-person recipient and a UK place of supply, with an additional registration condition for services within Parts 1 or 2 of Schedule 4A. Subsection (4A) excludes specified exempt services; the proposal should not be read as making every overseas service taxable.^[2]

The TIIN describes extending the registration condition across the relevant services. Its reference to Schedule 4 differs from the current statute’s Schedule 4A wording. The eventual amendment must therefore be checked rather than treating the explanatory note as operative legislation. No draft operative amendment has been reviewed for this brief.^[1][2]

HMRC identifies possible supplier registration, invoicing-system changes, record keeping and VAT-return and payment administration. Groups should establish actual supplier and customer VAT status and service classification before planning changes. The proposed 1 April 2027 start is not a newly established filing deadline, and current treatment should not be changed in anticipation of enactment.^[1][2]