From 1 April 2027, the UK VAT reverse charge for services bought from overseas suppliers will generally apply only where the UK business customer is VAT registered. If the customer is not VAT registered, the overseas supplier will instead be responsible for charging UK VAT and accounting for it to HMRC. This is the reform announced at Budget 2026.
For insurance brokers and other UK financial intermediaries with largely VAT-exempt income, the consequences could go beyond higher costs. The change may highlight historic VAT registration liabilities where overseas service purchases should previously have counted towards the business’s VAT registration threshold. Conversely, some brokers currently registered principally because of the reverse charge may be able to consider VAT deregistration from 1 April 2027, depending on their circumstances and the final legislation.
Why does this matter for insurance brokers?
Insurance brokers can receive substantial amounts of VAT-exempt income and may therefore assume that VAT registration is irrelevant to them. Purchases of services from overseas can change that conclusion. Under the rules applying before 1 April 2027, services received from overseas businesses that have to be reverse charged are included when calculating taxable turnover for VAT registration purposes. HMRC’s current guidance expressly includes services received from overseas businesses that have to be reverse charged within the VAT registration calculation. The current registration threshold is £90,000.
That creates three questions for insurance brokers:
- Could historic overseas expenditure already have triggered a requirement to register for VAT?
- How much additional irrecoverable VAT could overseas purchases cost from 1 April 2027?
- If the broker is already VAT registered, could the new rules make deregistration possible or worthwhile?
Those questions should be considered together rather than treating the Budget announcement simply as a prospective VAT change.
What is changing to the VAT reverse charge on 1 April 2027?
The existing reverse-charge rules are contained in section 8 of the Value Added Tax Act 1994. HMRC describes the current mechanism as requiring the UK purchasing business, rather than the overseas supplier, to account for the output VAT. Budget 2026 changes that treatment. From 1 April 2027, the reverse charge will apply only where the purchasing business is actually registered for UK VAT. Where the UK business is not VAT registered, the overseas supplier will instead have to charge VAT to its UK customer and account for that VAT to HMRC.
HMRC says the reform is intended partly to remove the tax advantage that an unregistered UK business can currently obtain by using an overseas supplier rather than a UK supplier. It also originates partly from concerns about businesses operating through overseas platforms in the gig and sharing economy. The consequences, however, are not confined to those sectors.
How will an overseas supplier know whether to charge UK VAT?
HMRC says that the reform will simplify the position for overseas suppliers because they will need to check their customer’s VAT number when deciding whether to charge VAT or apply the reverse charge. In broad terms:
- UK customer VAT registered: the reverse charge should continue to apply where the relevant conditions are satisfied.
- UK customer not VAT registered: the overseas supplier will generally become responsible for charging and accounting for UK VAT.
An overseas business making taxable supplies in the UK does not benefit from the ordinary £90,000 registration threshold available to UK-established businesses. HMRC’s current registration guidance states that a non-established business making supplies of goods or services in the UK must register regardless of taxable turnover. That could bring overseas technology providers, consultants and other service providers used by UK businesses into the UK VAT system where the statutory conditions are satisfied.
Could insurance brokers face additional VAT costs?
Yes, particularly where the broker cannot recover most or all of its VAT because its income is VAT exempt. For example, assume that an unregistered insurance broker buys £50,000 of standard-rated services each year from an overseas supplier and the new rules require the supplier to charge UK VAT. At the current 20% standard VAT rate, the VAT would be £10,000. If that VAT is contractually recoverable from the broker and the broker cannot reclaim it, the £10,000 represents an additional cost. The exact commercial outcome will depend on matters including the nature and VAT treatment of the services, the broker’s VAT recovery position and the contractual arrangements with its supplier.
Could the change uncover a historic VAT registration problem?
Yes. This may be the more significant issue for some insurance brokers. HMRC’s existing guidance says that services received from businesses in other countries that have to be reverse charged count towards taxable turnover when deciding whether the VAT registration threshold has been exceeded. That means a broker should not look only at the income on which it charges VAT. A business with predominantly VAT-exempt income could potentially have exceeded the VAT registration threshold because of the value of services purchased from overseas suppliers. This is easy to overlook. The potential registration obligation can be driven by the business’s overseas purchases, rather than by its own taxable sales. A broker that identifies this issue should establish when any registration obligation arose and determine the resulting VAT and potential penalty position. The April 2027 reform does not itself extinguish liabilities arising under the existing rules.
Could some insurance brokers deregister for VAT after 1 April 2027?
Potentially. This is the less obvious consequence of the change. Some insurance brokers may currently be VAT registered principally because purchases of overseas services bring them within the VAT registration rules. From 1 April 2027, an unregistered customer should ordinarily be charged VAT by the overseas supplier instead of accounting for that VAT through the reverse charge where the new rules apply.
For a broker that has very limited VAT recovery, remaining VAT registered may therefore need to be reconsidered. Deregistration would not necessarily eliminate the underlying VAT cost. The mechanism may simply change: instead of the broker accounting for VAT through its own VAT return, the overseas supplier may charge the VAT directly.
The potential benefit could instead be administrative. A business that is entitled to deregister might no longer need to prepare VAT returns or undertake some of the VAT recovery calculations associated with its registration. Whether deregistration is legally available and commercially sensible will depend on the business’s complete VAT position, not simply its purchases from overseas suppliers.
Can overseas suppliers simply add 20% VAT to their existing prices?
Not necessarily. Whether an overseas supplier can add UK VAT on top of its existing price will depend on the contract. If the contract does not allow VAT to be added, the supplier may have to bear some or all of the additional UK VAT cost itself. Businesses should therefore review overseas service supplier contracts before April 2027 to understand who will bear the cost of any applicable VAT.
What should insurance brokers do before April 2027?
Businesses potentially affected by the reform should consider five questions:
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