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Reverse charge when supplier is non-VAT-registered

Should you still apply the reverse charge procedure to these transactions?

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Hi everyone,

Thanks a lot for reading this! I'm only asking because I've received conflicting answers so wanted to wrack your brains for some clarity.

For simplicity, let's assume that a certain transaction definitely would be subject to the reverse charge if the supplier was VAT-registered. If, however, a UK-based VAT-registered business made this purchase from a non-VAT-registered supplier in another EU member state, would they still need to apply the reverse charge procedure?

On one hand, the whole point is that the onus is placed on the business receiving the services to account for VAT as if they were the supplier, in which case any supply they made would be subject to VAT as they're VAT-registered.

On the other hand, a purchase from a non-VAT-registered supplier is surely by nature outside the scope of VAT, so there's no basis for VAT to be accounted for in the first place.

Does anyone have a definitive answer to this?

Thanks again!

Replies (11)

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chips_at_mattersey
By Les Howard
29th Aug 2019 22:24

Where the supplier is not registered, the Reverse Charge is still applicable. This is because of the Place of Supply rule, which moves the supply to the MS of the recipient, so the supply is not outside the scope of VAT.

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Replying to leshoward:
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By [email protected]
15th Sep 2020 14:36

I'm not sure this is correct. Art. 43 of DIRECTIVE 2006/112/EC states, "The place of supply of services shall be deemed to be the place where the supplier has established his business or has a fixed establishment from which the service is supplied, or, in the absence of such a place of business or fixed establishment, the place where he has his permanent address or usually resides."

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Replying to [email protected]:
Psycho
By Wilson Philips
15th Sep 2020 14:43

jpp-AT-julianpinn.com wrote:

I'm not sure this is correct. Art. 43 of DIRECTIVE 2006/112/EC states, "The place of supply of services shall be deemed to be the place where the supplier has established his business or has a fixed establishment from which the service is supplied, or, in the absence of such a place of business or fixed establishment, the place where he has his permanent address or usually resides."


If you are going to quote legislation then you should make the effort to ensure that you are looking at the latest version.
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Replying to Wilson Philips:
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By [email protected]
15th Sep 2020 16:44

Thank you. I was not aware that this is not the latest version. Since you mentioned it, I looked, but still cannot find how to get the latest. Could you please point me in the right direction?

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By mad_dwarfer
29th Aug 2019 23:09

That's really clear, thanks a lot for your help.

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Psycho
By Wilson Philips
29th Aug 2019 23:13

To add to Les’s response, the fact that the supplier isn’t registered doesn’t take the supply outside the scope.

For example, supplies made by a UK trader who is not registered because he is below the threshold may still be taxable supplies even though no VAT is applied to them.

You might also want to consider the reverse of your scenario. A non-registered UK trader receiving supplies from a supplier registered in another Member State does not need to account for VAT, unless the supplies take him over the threshold.

The point is that VAT treatment under the reverse charge depends solely on the status of the recipient.

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By mad_dwarfer
29th Aug 2019 23:22

That all makes perfect sense and it's really cleared up the process for me. Thank you so much!

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By [email protected]
15th Sep 2020 14:40

Reading DIRECTIVE 2006/112/EC, it would seem to me that VAT is only accounted with reverse charge by the VAT registered customer if the supplier of the services is a taxable person, in this case they are not and therefore there is no VAT to account for and it should not be added to their invoice. I'd love to hear if anyone can point me to DIRECTIVE 2006/112/EC where it says otherwise.

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Replying to [email protected]:
Psycho
By Wilson Philips
15th Sep 2020 14:46

If you are going to quote legislation then you should make the effort to ensure that you are looking at the latest version.

EDIT - I note that you have substantially changed your comment (naughty) but I've copied the original in my response above. In any event, my comment holds true - you need to read the current version of the legislation.

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Replying to Wilson Philips:
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By [email protected]
15th Sep 2020 16:48

There was an error on the accountingweb.co.uk site that posted my reply to a particular answer as a new answer, so I went back in to edit it to fix it before anyone responded. I would still really like to be pointed to the relevant legislation that corrects my understanding--especially if you think I'm reference an out-dated version. Thanks.

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Replying to [email protected]:
Psycho
By Wilson Philips
15th Sep 2020 17:23

Here is just one location:

https://www.vatupdate.com/wp-content/uploads/2020/01/2020-01-12-vatupdat...

You also need to look at the UK VAT legislation which specifically applies the reverse charge. Nowhere, in either the EU legislation or the UK legislation, is there any requirement that the overseas supplier is VAT-registered.

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