Definition
Reverse charge is a VAT rule under which the buyer, rather than the seller, accounts for the VAT on a transaction. It is commonly applied to business-to-business services sold across borders within the EU and to certain domestic sectors. The seller issues the invoice without VAT and notes that the reverse charge applies.
Also called: Reverse charge VAT, Reverse charge mechanism
Reverse charge in practice
To apply the reverse charge, the invoice must show both parties' VAT numbers and a statement such as "Reverse charge: customer to account for VAT". The buyer then declares both the output and input VAT on their own return, which usually nets to zero.
Frequently Asked Questions
When do I use the reverse charge on an invoice?
When you sell services to a VAT-registered business in another EU member state, and in specific domestic cases defined by your country, such as construction services in the UK.