What is reverse charge VAT?

The reverse charge on European Union Value Added Tax, or VAT, simply reverses the responsibility of recording a value added tax transaction from the seller onto the buyer of goods and services. The reverse charge VAT is intended to simplify VAT reporting and was added as part of the VAT reform of 1993, according to EU Vat Directive.

Some common examples where reverse VAT charges can be applied are in the case of where goods or services are sold to another EU VAT registered business. When reverse VAT charges are applied, the recipient declares both the buyer's purchase and the supplier's sale in their VAT return. A U.S. company providing services to a company in the United Kingdom may be subject to the VAT rules and be required to register in that business's jurisdiction, reports the American Institute of CPAs.