The VAT reverse charge means that the customer, rather than the supplier, declares and pays the VAT. The supplier charges no VAT and states on the invoice that the VAT has been reverse charged. In this article you can read how the reverse charge works, when it applies, what belongs on the invoice, a worked example of both sides of the transaction, and the mistakes that lead to an assessment after the fact.
Who is this for, and what it is not. The reverse charge is a mechanism laid down in the EU VAT Directive, so the principle is the same across the Union, but the situations in which it is compulsory are set nationally. The sector examples below are the Dutch ones; check your own tax authority for the list that applies to you. Worth keeping apart as well: a reverse charge is not the same as an exemption or a zero rate. With a reverse charge the VAT is still due, it is simply due from the other party.
Looking for something more specific? Since a reverse charge stands or falls on your customer’s VAT number, start with verifying a VAT number or read how the EU’s VIES system works. If it is the invoice itself you are building, see how to make an invoice. And if you want to see both sides of a reverse-charged transaction, go to the worked example.
Table of contents
What does VAT reverse charge mean?
Normally the supplier charges VAT on a product or service and pays it over to the tax authority. Under the reverse charge that responsibility shifts to the customer: the supplier charges no VAT and the customer calculates and pays it instead. The purpose is to reduce administrative burden and to prevent VAT fraud, particularly in transactions between businesses and in cross-border trade. The mechanism itself is set out in the EU VAT Directive.
When does the reverse charge apply?
The reverse charge is not optional: where it applies, it is compulsory. The most common cases, using the Dutch rules as an example:
- Subcontracting and the hiring out of staff in construction, shipbuilding, cleaning, landscaping and industry.
- Trade in waste and scrap materials, such as scrap metal.
- Sales of mobile phones, chips, games consoles, laptops and tablets to other businesses above 10,000 euro excluding VAT.
- Cross-border business-to-business services and supplies within the EU, where both supplier and customer hold a valid VAT identification number.
That last case is the one most businesses meet. The first three are sector rules that differ per member state, so verify them locally. One rule holds everywhere, though: a reverse charge is only possible between VAT-registered businesses, never on a supply to a consumer.
What belongs on the invoice?
If you reverse charge the VAT, you state no VAT amount, but you do state:
- the wording “VAT reverse charged”;
- your customer’s VAT identification number, including the country code;
- the consideration per VAT rate, as it would have applied had the VAT not been reverse charged.
If the VAT identification number or the reverse charge wording is missing, the reverse charge is not valid and the tax authority can still assess the VAT against you. So verify your customer’s VAT number before you invoice, not after.
A worked example: both sides of the transaction
Suppose you invoice a business customer 5,000 euro for subcontracted work that falls under the reverse charge, where 21% VAT would otherwise apply. Here is what each party does:
| You (supplier) | Your customer | |
| Invoice amount | € 5,000 | € 5,000 |
| VAT on the invoice | none, reverse charged | none paid to you |
| Declares VAT of | nothing | € 1,050 |
| Deducts as input VAT | nothing | € 1,050 |
| Net effect on the return | nil | nil |
Nobody actually pays 1,050 euro, and that is the point of the mechanism: the VAT is declared and deducted in the same return, so it cancels out. The reverse charge is not a tax saving but a shift in who reports it, which removes the cash-flow step where fraud used to happen. Note the asymmetry, though: if your customer uses the purchase for VAT-exempt activities, the deduction falls away and the 1,050 euro really is payable by them.
The reverse charge in your VAT return
If you receive an invoice with the VAT reverse charged, you declare that VAT in your own return in the appropriate reverse charge box. Where you use the purchase for VAT-taxable activities, you deduct the same amount as input VAT in the same period, so on balance there is often nothing to pay. As the supplier you remain responsible for applying the mechanism correctly, which is why the check on your customer’s VAT number matters as much as the wording on the invoice.
Four common mistakes with the reverse charge
- Leaving out the reverse charge wording. Without it the reverse charge is not valid, and the tax authority can assess the VAT against you as the supplier. The customer, meanwhile, has no basis on which to declare it.
- Not verifying the customer’s VAT number. An invalid number means the reverse charge was not justified, and you carry the VAT. Verification takes a minute through VIES.
- Applying it to a consumer. The reverse charge only works between VAT-registered businesses. A private individual cannot declare VAT, so the supply is taxable in the normal way.
- Receiving the invoice and forgetting to declare. As the customer you owe the VAT even though nobody charged you any. Skip the declaration and you are short in your return, whether or not the deduction would have cancelled it out.
The role of TriFact365
The VAT return and the application of the reverse charge happen in your accounting package. TriFact365 helps with the step before that: the software recognises the details on your purchase invoices, including any reverse charge wording, and turns them into a booking proposal that goes into your accounts after your check. That matters here more than on an ordinary invoice, because a reverse-charged invoice has no VAT amount to read: what identifies it is the wording and the VAT number, and those are exactly the fields that get missed when someone retypes an invoice by hand. Read more about automated invoice processing.
Frequently asked questions
It means the customer, rather than the supplier, declares and pays the VAT. The supplier charges no VAT and states on the invoice that the VAT has been reverse charged.
Most commonly on cross-border business-to-business supplies within the EU where both parties hold a valid VAT number. National rules add sectors such as construction subcontracting, staff hire and scrap trading.
No VAT amount, but the wording that the VAT has been reverse charged, your customer’s VAT identification number including country code, and the consideration per VAT rate.
The customer. They declare the reverse-charged VAT in their own return and can often deduct the same amount as input VAT in the same period, so on balance nothing is payable.
No. With an exemption or a zero rate no VAT is due at all. With a reverse charge the VAT is still due, it is simply reported by the customer instead of the supplier.
No. The mechanism only works between VAT-registered businesses, because a private individual cannot declare VAT. Such a supply is taxed in the normal way.
TriFact365 recognises the details on your purchase invoices, including a reverse charge statement, and prepares a booking proposal. The VAT return itself you handle in your accounting package.
In closing
The reverse charge sounds complicated but comes down to one principle: the customer reports the VAT instead of the supplier. Know when it applies, put the right wording and the right VAT number on the invoice, and verify that number before you send it. That is what keeps an assessment off your desk and your records clean.
