VAT on services from overseas suppliers
A guide to reverse charges on services bought from overseas suppliers
When you buy services from overseas suppliers (e.g. Google, LinkedIn, Microsoft 365, overseas contractors), UK VAT rules require you to apply a reverse charge.
What a reverse charge means
The supplier does not charge UK VAT. Instead, you account for it yourself: declare the equivalent UK VAT in Box 1 of your return as output VAT, and simultaneously reclaim it in Box 4 as input VAT. For a fully taxable business, the net effect on Box 5 is nil. But if the entry is missed, Box 1 is understated.
In Xero
We configure a reverse charge VAT code during setup. When entering a bill from Google, Microsoft, or any other overseas service provider, select this code. Xero posts both the Box 1 and Box 4 entries automatically. The most common error is treating these bills as No VAT and missing the reverse charge entirely.
💡 Good to know: Common overseas suppliers that require a reverse charge include Google Ads and Workspace, LinkedIn, Microsoft 365, Dropbox, Zoom, Mailchimp, and any overseas freelancer or consultant. If a supplier's invoice shows no UK VAT and they are based outside the UK, a reverse charge almost certainly applies.
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