If your organisation buys services from overseas (for example software, consultants or freelancers), you may need to apply reverse charge VAT. This is one of the most common areas where purpose driven entities fall into error.
What you need to know
- If a supplier is outside the UK, they will usually not charge VAT
- This does not mean there is no VAT
- It means you must account for the VAT yourself
- This applies to most business-to-business services where the supplier is overseas and the place of supply is the UK [legislation.gov.uk]
Why this matters for purpose driven entities
- Many organisations have grant or non-business income
- VAT recovery is often restricted or very limited
- Reverse charge VAT therefore becomes a real cost, not just an accounting entry
Common issue we see
- Overseas invoices with no VAT are treated as “no VAT issue”
- In most cases, this is incorrect
- This can lead to significant historic VAT liabilities
You may be affected if you use
- Overseas software (Google, Zoom, Notion, etc.)
- Overseas contractors or consultants
- Marketing or digital services from outside the UK
What to do next
- Check whether reverse charge VAT is being applied correctly
- Consider whether VAT recovery is restricted
- Review whether your VAT position still makes sense overall
If you would like us to sense-check this with you, just get in touch.