Reverse charge VAT (Value Added Tax) is a special rule where the buyer , rather than the supplier , is responsible for accounting for the VAT on a transaction. In simple terms, the business customer “pays” VAT to the tax authority and then immediately claims it back on the same VAT return, so there is usually no net VAT cash movement.

What “reverse charge” means

Normally, when a VAT‑registered seller provides goods or services, it:

  • Adds VAT to the invoice.
  • Collects that VAT from the buyer.
  • Pays the collected VAT to HMRC or the local tax authority.

Under the reverse charge mechanism:

  • The supplier does not charge VAT on the invoice.
  • The customer calculates the VAT on the supply and reports it as both output VAT and input VAT on its own VAT return.
  • Because output and input VAT cancel out, the customer pays no extra cash to the tax authority, but the transaction is still recorded transparently.

Why it exists

The reverse charge is mainly used to:

  • Reduce VAT‑fraud risk (for example, “missing trader” fraud) where foreign suppliers disappear without paying VAT.
    • Simplify cross‑border VAT for B2B supplies inside the EU or similar regimes, so VAT is accounted for where the buyer is based rather than where the supplier resides.

Common situations where it applies

Typical examples include:

  • B2B cross‑border services (e.g., one EU business selling services to another EU business).
  • Certain UK construction services supplied between VAT‑registered businesses under the domestic reverse charge.
  • Low‑value or specific intra‑EU supplies where the supplier is exempt from charging VAT, but the buyer must account for it.

How it looks on an invoice

An invoice subject to reverse charge:

  • States that the VAT rate is not applied (often marked “reverse charge” or “VAT accounted for by the recipient”).
  • Shows the net amount only , with the customer responsible for working out the VAT at the normal rate and completing the relevant boxes on its VAT return.

Quick comparison: standard VAT vs reverse charge VAT

[1][7] [3][5] [1][7] [3][5] [7][1] [4][3]
Aspect Standard VAT Reverse charge VAT
Who charges VAT? Supplier on the invoice Supplier does not charge VAT
Who reports VAT? Supplier reports output VAT Buyer reports output and input VAT
Cash‑flow impact Buyer pays VAT to supplier Buyer pays net amount; VAT cancels in its return
If you tell me which country you mean (for example, UK, EU, or another jurisdiction), I can give a more specific example tailored to your tax rules.