From April 2027, overseas suppliers of services face new UK VAT obligations depending on their customers’ registration status.
HMRC calls it simplification. But for whom?
The UK’s October 2026 Budget has announced a significant change to the VAT reverse charge on services purchased from overseas suppliers. From 1 April 2027, the reverse charge will apply only where the UK business customer is VAT registered.
For affected services supplied to unregistered UK businesses, the overseas supplier will instead be responsible for charging and accounting for UK VAT.
Same service. Different VAT treatment
Consider a German software company supplying a £1,000 subscription to two UK businesses.
- Customer A is VAT registered: The German supplier invoices without UK VAT. The customer accounts for VAT under the reverse charge.
- Customer B is not VAT registered: The German supplier charges £200 UK VAT, assuming the standard 20% rate applies, and accounts for it to HMRC.
The service is identical. Both customers are businesses. Yet their VAT registration status determines who accounts for the tax.
Simplification for whom?
HMRC argues that the reform removes an unfair advantage enjoyed by overseas suppliers and reduces compliance obligations for smaller UK businesses. Currently, purchases of overseas services can count towards a UK business’s VAT registration threshold, potentially forcing registration simply because it buys services from abroad.
But the burden shifts overseas. Foreign suppliers generally have no UK VAT registration threshold, meaning even a single affected supply to an unregistered UK business could trigger registration, Making Tax Digital obligations and ongoing VAT returns.
HMRC estimates the measure will raise £70 million in 2027–28, increasing to £75 million annually. Yet it describes the administrative impact as negligible. Overseas suppliers facing new compliance costs may disagree.
Another complication for automated VAT determination
For international suppliers, identifying a customer as B2B is no longer sufficient. VAT determination must also consider customer registration status, supply classification and the applicable national rules.
The change comes as the EU considers reverse-charge provisions alongside its VAT in the Digital Age reforms. Rather than disappearing, the reverse charge is becoming more targeted, with different jurisdictions pursuing different objectives.
This is precisely the type of legislative distinction VATCalc’s tax determination engine is designed to apply automatically.
See more in our UK VAT Guide.
