# Classify cross-border services before choosing reverse-charge VAT A foreign address does not establish reverse-charge treatment. Identify the service, the customer's status and the establishment involved, then determine where it is taxed and who accounts for it. Decide input-tax recovery separately. Use the [service VAT decision worksheet](#template) before assigning an ERP tax code. This guide recommends a control process using UK and EU examples. It does not establish one global test or classify a mixed contract from its invoice description alone. ## Describe the supply before selecting the tax code Record the contract, actual deliverables, service dates and recipient. Distinguish consultancy, work directly related to land, admission to an event and electronically supplied services where relevant. Ask tax whether a mixed contract contains a single supply or several supplies requiring separate treatment. Identify whether the customer acts as a business for this transaction and retain the evidence used. A VAT number can be relevant evidence, but unresolved customer status should reach a tax reviewer rather than trigger a default code. Billing owns outbound supply facts. Procurement and AP own purchased-service evidence. Tax approves classification, establishment, liability and deduction. The application owner implements the resulting rules and preserves their effective dates. ## Determine place of supply and test the relevant exceptions The Commission explains the EU general B2B customer-location rule and B2C supplier-location rule, alongside special rules. Land-related services and physical event admission can follow different location rules. Its current explanation also distinguishes virtual attendance from physical B2B admission. [European Commission, place of taxation](https://taxation-customs.ec.europa.eu/taxation/vat/vat-directive/place-taxation_en). Use the specific rule that applies to the actual service. Record the supplying and receiving establishments and why they are relevant. Do not copy the conclusion from an unrelated corporate-tax permanent-establishment assessment. For UK transactions, use the UK rules. Notice 741A addresses service classification, establishment and reverse charge, including relevant use-and-enjoyment provisions. [HMRC, VAT Notice 741A](https://www.gov.uk/guidance/vat-place-of-supply-of-services-notice-741a). ## Determine who accounts for VAT After deciding the place of supply, identify the liable person and any registration or invoice requirement. A service taxed in a particular country does not automatically mean its foreign supplier charges that country's VAT, nor that the customer always reverse charges. The Commission explains customer liability under Article 196 for qualifying general-rule services supplied by a person not established in the customer's Member State. Other categories need their own applicable liability rules. [European Commission, persons liable for VAT](https://taxation-customs.ec.europa.eu/taxation/vat/vat-directive/persons-liable-vat_en). Record the invoice wording, charged tax, customer self-accounting and return treatment as separate fields. A code called export or zero rate can misrepresent a service outside the supplier country's scope. Give the ERP code an approved meaning and check its actual output. ## Compare four transaction patterns For a synthetic Swedish consultancy supplying a French taxable business, assume tax confirms that the general B2B rule applies, the French establishment receives the service and the supplier is not established there. The approved outcome follows the relevant French reverse-charge implementation. Billing retains that decision and issues the document using the approved wording and reporting treatment. Now consider work directly related to a building in France for a German customer. Tax assesses the land-related rule and French liability requirements. The German customer address does not justify reusing the consultancy code. The conclusion needs the service's relationship to the property and the relevant national rules. For physical admission to an educational event in France, test the admission rule. For virtual business attendance, test the current virtual-attendance treatment rather than inheriting the physical venue's country. These are classification exercises, not a decision that every event service is admission or that every online service is the same kind of electronic service. Finally, consider a UK business purchasing ordinary consultancy from a US supplier. Assume the UK general B2B rule applies, the supplier belongs overseas, no exception changes the outcome and UK reverse charge is required. AP records the supplier liability separately from self-accounted VAT. Work the amounts before approving the mapping. ## Calculate a partially recoverable UK purchase Use a synthetic GBP 10,000 consultancy purchase, taxable at an assumed applicable 20% UK rate. The tax owner has approved 60% input-tax recovery for this example. This percentage is an explicit assumption, not a general partial-exemption rule. Reverse-charge output tax is GBP 10,000 multiplied by 20%, or GBP 2,000. The recoverable input amount is GBP 2,000 multiplied by 60%, or GBP 1,200. The remaining GBP 800 is unrecoverable under the approved treatment. One illustrative journal debits expense by GBP 10,800 and recoverable input tax by GBP 1,200. It credits the supplier payable by GBP 10,000 and reverse-charge output tax by GBP 2,000. Debits and credits both total GBP 12,000. The extra GBP 800 expense reflects the assumed unrecoverable VAT. The VAT payable effect is GBP 2,000 less GBP 1,200, or GBP 800. The supplier still receives GBP 10,000 under these assumptions. Do not add the self-accounted GBP 2,000 to its payable. HMRC distinguishes reverse-charge output tax from input tax recoverable under normal rules. The amounts need not cancel. [HMRC, Notice 741A, section 5](https://www.gov.uk/guidance/vat-place-of-supply-of-services-notice-741a). ## Detect the wrong automatic result Suppose AP uses a code that claims the full GBP 2,000 as input tax. The resulting net VAT effect is zero and the expense is understated by GBP 800. The journal can still balance. Compare the result to the approved recovery decision rather than relying on debit-credit equality. Stop automatic processing for that pattern. Identify the affected population, correct the recovery mapping and obtain tax's decision on any submitted return. Preserve the original transactions and correction evidence. Do not edit a prior filed return value only in the working spreadsheet. If the supplier charged foreign VAT unexpectedly, ask tax whether it is correct and what correction or recovery route applies. Do not treat foreign tax as UK input VAT because the invoice imported into a UK company. Keep the supplier dispute and local self-accounting decision visible until resolved. ## Maintain effective decisions and complete the control Reassess the code when the service, customer status, receiving establishment or contract changes. Preserve historical conclusions for old transactions awaiting settlement or correction. Test credit notes against the original classification and period rather than assigning today's default code. - ☐ The actual service and customer status have evidence. - ☐ The relevant establishment and place-of-supply rule are approved. - ☐ Special rules and use-and-enjoyment questions have been considered where relevant. - ☐ Supplier liability, reverse charge and input recovery are separate decisions. - ☐ Invoice wording, payable and reporting outputs match the decision. - ☐ The partial-recovery example produces GBP 800 net VAT, not zero. - ☐ Changed facts, credits and prior-return errors have named reviewers. Use [the business-footprint guide](https://erplocalization.com/guides/company-vat-registration-permanent-establishment/) for establishment assessments, [invoice routing](https://erplocalization.com/guides/cross-border-invoice-routing-tax-reporting/) for document paths and [reconciliation](https://erplocalization.com/guides/reconcile-e-invoices-erp-tax-return/) for the return bridge. Sources checked 17 October 2026. Tax rates and recovery assumptions require confirmation for the actual transaction and period. ## Worksheet: Service VAT classification and reverse-charge record Copy this worksheet for each case. It records decisions and evidence; it does not determine the tax or legal treatment. Show the worksheet Use with [the services VAT guide](https://erplocalization.com/guides/cross-border-services-vat-reverse-charge/). Complete the legal decision before selecting a tax code. ### Describe the supply - Contract, actual service, dates and relevant jurisdiction: ____ - Supplier/customer and business-status evidence: ____ - Supplying/receiving establishments and supporting facts: ____ - General or specific place-of-supply rule: ____ - Land, event, virtual-attendance or other special-rule analysis where relevant: ____ - Mixed-contract and use-and-enjoyment review where relevant: ____ ### Approve the result - Place of taxation and legal basis: ____ - Liable person, registration and reverse-charge conclusion: ____ - Rate, tax base and conversion rule: ____ - Input recovery decision, basis and period: ____ - Invoice wording, payable and return treatment: ____ - ERP code, effective dates and approver: ____ ### Test the purchase The synthetic UK example assumes GBP 10,000 net, 20% output tax and an independently approved 60% recovery ratio. - Output tax: 10,000 × 20% = 2,000. - Recoverable input: 2,000 × 60% = 1,200. - Unrecoverable amount and net VAT effect: 2,000 - 1,200 = 800. - Expense: 10,000 + 800 = 10,800. - Journal debits: 10,800 expense + 1,200 input = 12,000. - Journal credits: 10,000 supplier + 2,000 output = 12,000. Actual expected result and comparison evidence: ____ - ☐ Foreign supplier status alone does not select the code. - ☐ Liability and recovery are separate approved decisions. - ☐ Foreign VAT cannot automatically become local input tax. - ☐ Supplier payable excludes self-accounted tax unless another valid obligation applies. - ☐ Credits, changed facts and earlier return errors have a review route. Tax approval and date: ____ AP/billing acceptance and date: ____ ## Related on this site - [Country pages](https://erplocalization.com/countries/): key facts with sources - [E-invoicing matrix](https://erplocalization.com/e-invoicing/): country × ERP support - [All guides](https://erplocalization.com/guides/) Vendor documentation is cited only as an example of the level of evidence to ask for; it is not a recommendation or a ranking. This guide is general information, not tax or legal advice. Checked 2026-10-17. Related: [Glossary](https://erplocalization.com/glossary/) – abbreviations and terms used in these guides (SAF-T, Peppol, CTC, EN 16931, IFRS and more). --- Canonical: https://erplocalization.com/guides/cross-border-services-vat-reverse-charge/ · Last updated: 2026-10-17 · Informational only; not tax, legal or implementation advice. Featured placements are paid or promotional and do not affect the compliance data. Data: CC BY-NC 4.0 (commercial use needs a licence: https://erplocalization.com/data-licence/), attribution "ERP Localization (erplocalization.com)".