The VAT reverse charge is likely to apply to you and your business if you are registered for VAT and purchase services from businesses that are based outside of the UK. The reverse charge is an unusual transaction which often causes confusion.
The reverse charge will only apply if you are registered for VAT and a charge is triggered by a qualifying transaction. You don’t need to worry about the reverse charge if you are not registered for VAT.
The reverse charge in effect accounts for the amount of VAT you would have been charged if you paid for the service you received within the UK. This adjustment is fairly straight forward to transact. You first need to add the amount of VAT (as if the service was purchased in the UK) to the total VAT payable to HMRC for the quarter and then also add the same value to the total recoverable (or being reclaimed) from HMRC.
The net impact of the reverse charge is nil. You don’t pay anything extra to HMRC and you don’t reclaim anything extra from HMRC. The two entries net each other off to nil.
You must also remember to add the VAT at the current rate of 20%.