Reverse charge invoices in Ireland

What the reverse charge is

Normally the supplier charges VAT, collects it from the customer and pays it to Revenue. Under the reverse charge the supplier charges no VAT, and the customer accounts for it instead, in their own VAT return. Where the customer can reclaim VAT in full, the two entries cancel out and no money changes hands, but both entries still have to be made.

The reverse charge exists so that a business does not have to register for VAT in every country it sells into, and, in some Irish sectors, to stop VAT going missing between the supplier and Revenue.

Services to a business in another EU country

The general rule for business-to-business services is that VAT is due where the customer is established. If you are an Irish business supplying consultancy, design, software development or most other services to a VAT-registered business in France, the supply is taxed in France, and the French customer accounts for the French VAT under the reverse charge. You charge no Irish VAT.

There are exceptions where the place of supply follows a different rule, notably services connected with land and buildings (taxed where the property is), passenger transport, admission to events, and restaurant and catering. For those, the reverse charge may not apply in the usual way, and you may need to charge VAT or register elsewhere. This is where an accountant earns their fee.

On your side, you still report the sale: in the VAT3 return and in the VIES return of intra-EU supplies.

Goods to a business in another EU country

Goods sold to a VAT-registered business in another EU country, and actually transported out of Ireland, are an intra-Community supply. You zero-rate the supply and the customer accounts for VAT on the acquisition in their own country. Strictly this is zero-rating plus an acquisition by the customer rather than the reverse charge on services, but it works the same way for your invoice: no Irish VAT, and the customer does the VAT.

To zero-rate the goods you need:

• the customer’s valid VAT number in the other Member State;
• evidence that the goods left Ireland (transport documents, proof of delivery);
• the supply included in your VIES return. Since 2020, a valid VAT number and a correct VIES return are conditions for the zero rate, not just paperwork.

Goods moving to and from Northern Ireland follow the EU goods rules under the Windsor Framework, and Northern Ireland businesses have VAT numbers beginning XI. Services to Northern Ireland and to Great Britain do not follow the EU rules. Check the current position with your accountant.

Check the VAT number on VIES

Before you invoice without VAT, check the customer’s VAT number on the European Commission’s VIES service (search “VIES VAT number validation”). It confirms whether the number is valid and, in most countries, the registered name and address. Keep a record of the check: VIES gives you a consultation number if you enter your own VAT number as the requester.

If the number is not valid, do not apply the reverse charge. Ask the customer for a valid number, or charge Irish VAT until they give you one. A business that cannot produce a VAT number is, for these rules, treated like a private customer, and the answer is usually that you charge VAT.

Invoicer checks a client’s VAT number against VIES when you add them.

What the invoice must say

A reverse-charge invoice carries all the usual particulars, plus:

• the customer’s VAT number;
• a note that the reverse charge applies. Revenue’s guidance uses the words “reverse charge applies”. “VAT reverse charged” is common on Irish invoices and says the same thing. For goods to another EU country, write “intra-Community supply of goods” instead;
• no VAT amount: the VAT line shows zero, with the net amount it relates to.

It does no harm to add the legal basis, for example “Reverse charge: Article 196, Council Directive 2006/112/EC”, which a customer’s accounts team in another country will recognise.

When you receive a reverse-charge invoice

If an EU supplier invoices your Irish business without VAT, you account for the Irish VAT yourself: you include it as VAT on sales in your VAT3 and, if the purchase is for a business use that allows it, claim the same amount back as VAT on purchases. You also report the value of the services received from other EU countries in the relevant boxes of the return. For most fully taxable businesses the net effect is nil, but leaving it out is still an error.

Domestic reverse charge: construction and other sectors

Ireland also uses the reverse charge between Irish businesses in a few sectors. The best known is construction: where a principal contractor pays a subcontractor for construction operations within the Relevant Contracts Tax (RCT) system, the subcontractor does not charge VAT and the principal contractor accounts for it. The subcontractor’s invoice shows no VAT and notes that the reverse charge applies. Whether a job falls within RCT depends on the work and the contract, so confirm it before invoicing.

Similar domestic reverse-charge rules cover certain other supplies, including some supplies of scrap metal, gold, greenhouse gas emission allowances and some property transactions. They are specialist areas: if you think one applies to you, talk to your accountant.

Common mistakes

• Applying the reverse charge to a private individual in another EU country. It only works business to business.
• Leaving the customer’s VAT number off the invoice, or not checking it on VIES.
• Writing “0% VAT” with no explanation. Say why no VAT is charged.
• Forgetting the VIES return for EU sales.
• Applying the reverse charge to services connected with Irish property or to events, where different rules apply.

The edge cases are real, and getting them wrong can mean paying VAT you never collected. If you are unsure, check with an accountant before you invoice.

In Invoicer you choose “Reverse charge” on the line, the invoice carries the customer’s VAT number and the reverse-charge wording, and the EN 16931 e-invoice file uses the correct VAT category. You can also try it in the free invoice generator.