What is the purpose of the Reverse Charge?
There are some occasions where we are obliged to account for UK VAT on the purchase of services from overseas suppliers. This is known as the “Reverse Charge” procedure. We therefore have to use different Oracle tax codes to those used for the purchase of goods from overseas suppliers.
Goods are tangible items such as equipment, machinery and stationery.
Services are anything else. E.g. Consultancy, research and education. Services are also rights or the relinquishing of rights e.g. IP rights.
N.B. The Reverse Charge does not apply to all services.
How does the Reverse Charge procedure work in Oracle?
Oracle accounts for the Reverse Charge automatically based on the supplier setup. In effect, we pay the supplier’s VAT for them to HMRC.
This VAT is then subject to the same procedures as the VAT on any invoice from a UK supplier. Therefore, it may be irrecoverable, partially recoverable or fully recoverable, as per the usual rules, and may create a cost to the University department accordingly.
What types of services are affected?
The Reverse Charge procedure applies to ALL services purchased from suppliers outside the UK, other than the exceptions listed in section 4 below. The reverse charge applies regardless of whether the supplier is based in the EU or the rest of the world (unless the supplier has a UK VAT registration number, in which case, UK VAT should appear on the supplier’s invoice).
Therefore, the reverse charge will cover services such as:
- Educational or scientific services performed in the UK
- Services relating to conferences or exhibitions held in the UK
- Research and consultancy from anywhere in the world
- Testing which includes analysis of materials and conclusions, or written scientific reports undertaken anywhere in the world
- Purchases of copyrights, patents, licences, trademarks and other similar rights
- Supply of staff
- Hire of goods
- Telecommunications services
- Relinquishing rights
This list is illustrative, but not exhaustive, as all services fall under the reverse charge, other than the exceptions listed below.
What services are not affected?
There are groups of services that do not currently fall under the Reverse Charge procedure when provided by a supplier outside the UK, regardless of whether the supplier is based in the EU or the rest of the world. These include:
Training, lecturing, cultural performances, basic scientific services including testing (with no analysis of results); all of these services are subject to VAT where the services physically take place
Services related to specific land or buildings; these services are subject to VAT where the land/buildings are located
Catering, passenger transport, short-term hire of means of transport
It is possible that the supplier will charge overseas VAT on these services. This cannot currently be recovered by the University and is therefore a cost to the department. The gross, VAT-inclusive amount should be posted to Oracle.
Research collaborators based overseas who are named as recipients of the research funding within the funding agreement can be treated as collaborators on the research for VAT purposes.
The supplier should be set up as as an ‘Organisation 71 collaborator’, which treats the payments as outside the scope of VAT and does not apply the reverse charge rules.
Please note this does not apply to sub-contractors, see Working with other researchers for more information.
Important Note re: Non-business Activities
Reverse charge VAT must be applied even if the services are to be used entirely for non-business activities, such as non-business research (which is usually research funded by charities, research councils, or government bodies).