Foreign Supplier Invoice to Sole Trader - Reverse Charge

Dear HMRC, this question is regarding an invoice from a foreign seller to a non-VAT registered UK sole trader. The invoice for the good that shall be used for business purposes states 0% VAT due to it being an international sale. Does reverse charge apply for the sole trader and should this be added to the tax return or is there no VAT to be paid as the sole trader is non-VAT registered? Many thanks.

Reverse charge only applies to services in this context. Goods entering the UK from abroad will be subject to import VAT, so I would expect the sole trader to receive an invoice from the freight agent (DHL, FedEx, Royal Mail) before the goods are delivered... unless sole trader gets lucky and the goods slip through the customs net and the goods are delivered with nothing else to pay (ie, lucky chance). Reverse charge services count towards VAT registration threshold, so if you were buying in services from outside the UK, the value of those purchases are added to the sole traders turnover and that could mean if sole trader buys significant services from abroad, they could end up having to register for UK VAT as a result.

Hi.
If the supply is of goods then there will be an import requirement at the borderand so VAT would need to be paid to HMRC via the shipping agent.
If the oversees seller is supplying services to a non VAT registered business then these services would normally be subject to the reverse charge and so there would be no VAT to pay by the UK business but it would go towards their turnover for VAT registration purposes.
Please see the guidance below:
Reverse charge

Dear HMRC, thank you for the reply. In the case of a service: If a service is provided by a foreign seller before trading of the sole trader started, can it still be considered a B2B service? Specifically, if this this service was for business purposes and shall also be considered as a pre-trading expense for the sole trader? Or does that automatically make it a B2C sale? If it is considered B2B, did I understand correctly that reverse charge would indeed apply? But if the sole trader is not VAT registered, then no VAT is paid, neither by the foreign seller nor the domestic sole trader? Does the amount need to be added on the tax return somewhere to calculate turnover or is this just something to keep in mind, so one should register once they go above the threshold? Many thanks.

Hi,

If the supply is made by an overseas trader to a person in the UK then it is important to identify whether this is being received for a business purpose. It makes no difference whether the person is registered for VAT but whether they are in business.

If they are in business then the reverse charge will apply and the value of the supply will form part of the business customer's turnover for VAT purposes. You can see the guidance here:

Reverse charge

Thank you.

Dear HMRC, assuming a sole trader buys something in month A, which can be considered a pre-trading expense and sets up their business, acquiring clients etc. but the first service is provided in the following month B, at what point in time is the sole trader considered to be in business? As from what I understood being „in business“ is crucial to differentiate between a B2B and B2C sale if the sole trader is the client. Many thanks.

Hi,

Whether an entity is in business or not will determine the place of supply rule. You can see guidance here:

The place of supply rules for services

Reverse charge

You can see the guidance below which defines 'business' for VAT purposes:

VBNB20250 - VAT Business and non-business basic principles: The Meaning of Business

Thank you.