Did you know a VAT registration requirement isn’t only triggered by sales but can in fact be triggered exclusively on purchases?

It’s not uncommon for entities making only exempt supplies, such as financial or charitable organisations, to assume they have no requirement to register for VAT. After all, if they’re not making taxable supplies, VAT registration wouldn’t normally arise. However, where such entities receive certain services from suppliers based overseas, a VAT registration requirement can be triggered.

Under the reverse charge rules, the responsibility for accounting for UK VAT shifts from the overseas supplier to the UK recipient of the service. This means the UK entity must treat the transaction as if it was a sale by them and include the value of these supplies when assessing whether they have breached the VAT registration threshold of £90,000.

Consider an example of a charity which has mainly grant income but is making taxable supplies of £50,000 per annum. This alone would not trigger a VAT registration liability. However, were the charity to incur yearly fees from overseas suppliers which are subject to the reverse charge (for example professional fees) of £50,000 in addition to the £50,000 of taxable income, the charity will have a VAT registration obligation created by the supplies received from the overseas suppliers.

For entities that can recover all of their VAT this does not pose a problem on the basis that the VAT on the “deemed supply” is also treated in the same way as VAT incurred on UK purchases and can be recovered on the same VAT return as the VAT accounted for on the reverse charge, the net effect of this being nil.

Unfortunately for entities that would not be entitled to recover all of their UK VAT, the VAT the must account for on overseas supplies can become a cost and, in some cases, can lead to significant VAT liabilities.

It’s therefore important to check whether non-VAT registered clients who regularly receive cross-border services, such as professional advice, marketing, or digital platform subscriptions, have considered the reverse charge in their registration monitoring. Where registration is required, the business must register and account for VAT under the reverse charge, even if it cannot recover that VAT because its own activities are exempt.

If you are worried a client might need to be registered, or you want help to spot the triggers, get in touch.