How to create a reverse charge invoice
If you’re registered for VAT and sell goods or services to other VAT-registered businesses in EU countries, you may need to create a reverse charge invoice.
Reverse charge is a system for intra-EU business-to-business (B2B) sales in which the buyer accounts for the VAT rather than the seller. In standard domestic transactions, the seller accounts for the VAT.
Since the UK officially left the EU on January 1st 2021, the reverse charge will not apply for the majority of Great Britain - EU transactions. However, if your business is located in Northern Ireland, the reverse charge may apply.
This article explores which sales should apply the reverse charge after Brexit and how to create a reverse charge invoice.
Please note that this article does not cover domestic VAT reverse charge for the construction sector, but only cross-border transactions. If you want to learn more about the domestic reverse charge for construction services, feel free to read the article: Invoice templates for construction services.
How does reverse charge work?
The reverse charge is a VAT procedure for cross-border sales between VAT-registered businesses. It only applies to countries within the EU single market, so Norway, Iceland, and Liechtenstein are excluded. After Brexit, Great Britain is also now excluded.
The reverse charge was created to simplify the VAT reporting process for cross-border sales within the EU single market.
If the reverse charge applies to an EU sale, you must input the reverse charge VAT (0%) on the invoice. The EU buyer later includes these amounts on their monthly or quarterly VAT Return (or foreign equivalent) which includes both the input VAT and output VAT for that period. These transactions cancel each other out on the VAT Return.
HMRC or the relevant tax authorities of the customer will see these transactions on the VAT Return and recognise that they are reverse charge sales.
When does the reverse charge apply?
Prior to Brexit, the reverse charge applied to most intra-EU sales between VAT-registered businesses. After Brexit, all goods entering Great Britain from the EU are now “imports” rather than “acquisitions” and are subject to VAT and duties.
However, Northern Ireland is treated differently in terms of VAT than England, Scotland, and Wales. After the Brexit transition period ended, Great Britain left the EU customs area and the single market, whereas Northern Ireland continued to fall within the EU single market and VAT area.
This means that sales between Northern Ireland and the EU can still apply the reverse charge as normal for imports/exports, whereas sales between Great Britain (England, Scotland, and Wales) and the EU cannot do so.
Any sales between Northern Ireland and Great Britain are considered domestic transactions and should apply the domestic VAT procedure.
However, as with most VAT rules, there are several exceptions, the most notable being cross-border sales of services. Since processes change quickly, you should visit the UK Government website or speak to a qualified accountant for the most up-to-date guidance on when to apply the reverse charge.
Do I apply the reverse charge to my invoice?
If your business is based in Great Britain (England, Scotland, or Wales) and you're selling products to:
The EU: the reverse charge does not apply (in most cases)
Northern Ireland: use the domestic VAT procedure
If your business is based in Northern Ireland and you are selling products to:
The EU: the reverse charge will apply (in most cases)
Great Britain: use the domestic VAT procedure
You should speak to your accountant to determine if your business falls within one of the exceptions of the reverse charge procedure.
What information goes on a reverse charge invoice?
Reverse charge invoices include all of the required information on a VAT invoice. In addition, they need to clearly state “reverse charge” and include the 0% VAT rate. It doesn't matter where you enter the “reverse charge” label, as long as it is clearly visible on the invoice.
Entering “reverse charge” and 0% VAT distinguishes it from a standard invoice and lets the customer and HMRC know that the buyer will account for the VAT.
If you use invoicing software that includes accounting reports, this will also mark the sale as a reverse charge transaction and will enter the amounts in your VAT Report as such.
Sample reverse charge invoice
Below, you'll find a sample reverse charge invoice created with SumUp Invoices. “Reverse charge transaction” is clearly stated on the invoice, and the VAT rate is set to 0%.
Invoicing software for reverse charge invoices
Invoicing software is a great tool to help you create legally compliant invoices, and keep track of your overall business finances.
With SumUp Invoices, you can create a reverse charge invoice in less than 1 minute. If you're a UK VAT-registered business and enter an EU customer on an invoice, a toggle button will appear asking if you wish to treat the sale as an intra-EU transaction. If you toggle this button ON, the VAT rate will automatically switch to 0%. You can then enter the reverse charge label in the “Terms” section which will clearly add it to the bottom of the invoice.
With SumUp Invoices, all of your invoices will automatically include a payment link so your customer can pay instantly online. You'll also get notified as soon as the customer has viewed or paid an invoice, or if the invoice is overdue. Give it a try for free!
