Reverse Charge VAT: The Hidden Trap for Creative Businesses

Some creative business owners keep a close eye on their sales to make sure they don’t creep over the VAT registration threshold. But here’s the kicker: you could hit the limit without realising it - not because of your UK sales - but because of the way HMRC treats certain overseas purchases.

What is the Reverse Charge?

The “reverse charge” sounds technical, but it’s really just a VAT quirk. If you buy services from a supplier outside the UK (think software subscriptions, cloud storage, design platforms, video editing tools, or even overseas freelancers), they don’t add UK VAT to their bill.

Instead, HMRC makes you - the UK business - treat it as if you sold the service to yourself. You “self-account” for the VAT. It’s a neat way to make sure foreign companies don’t have to register for UK VAT, but HMRC still gets its share.

Why It Matters for the VAT Threshold

Here’s the part most people miss: if you’re not already VAT registered, the value of those reverse charge purchases counts towards the VAT registration threshold.

The current threshold is £90,000 in any rolling 12-month period. Many assume this is just based on UK sales. Not so. Reverse charge purchases must be added in too.

A Real-World Creative Example

Let’s say your design studio bills £70,000 over the last year for work with UK clients. You’d think you’re well under the threshold.

But you also spend £25,000 on overseas services - things like Adobe licences, video editing software, web hosting, or a digital agency based in the US.

Add the two together, and your “taxable turnover” for VAT purposes is £95,000. That’s above the £90,000 limit, so you’d need to register for VAT, even though your UK sales alone are under.

What HMRC Says

HMRC’s own guidance is clear:

“Any reverse charge services they receive must be added to their taxable turnover when considering the need to register.”

In other words, if you buy enough from abroad, you might be VAT-registered sooner than you think.

What You Should Do

• Check your subscriptions and suppliers – if they’re outside the UK, they may fall under the reverse charge.

• Add them to your UK sales when you review your rolling 12-month total.

• Don’t ignore the threshold – going over without registering can mean back-dated VAT, penalties and interest.

• Get advice early – VAT rules are fiddly, and the creative sector often relies on overseas tools.

Final Thought

VAT is tricky enough without hidden traps. Don’t let your favourite design software or overseas freelancers push you into registration without realising. Keep an eye on your totals, and if you’re close to the line, get professional advice before HMRC gets there first.