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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 (4)

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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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By mad_dwarfer
29th Aug 2019 23:09

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

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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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