Invoice with VAT instead of reverse charge
The customer cannot deduct VAT charged in error. A credit note and a correctly reissued invoice must be requested.
VAT numbers · VAT
Reverse charge and split payment in Italy
Reverse charge and split payment are two mechanisms that shift the IVA (Italian VAT) obligation from the supplier to the customer, but in different ways: in the first the customer accounts for the tax itself, in the second it pays the tax straight to the Treasury. Mix them up and you get both the invoice and the VAT settlement wrong.
01 · Two mechanisms
What sets reverse charge and split payment apart
Both depart from the general rule that VAT is charged by the supplier and paid by the supplier. The difference lies in who accounts for the tax and how.
| Reverse charge | Split payment | |
|---|---|---|
| Who owes the VAT | The customer, who adds it to the invoice and records it | Still the supplier, who does not collect the tax |
| What the supplier does | Issues an invoice without VAT, with the required wording | Issues an invoice with VAT, with a note |
| What the customer does | Adds VAT to the invoice and records it as both output and input tax | Pays the VAT straight to the Treasury |
| Who it applies to | Transactions between VAT-registered businesses in specified sectors | Supplies to public bodies and equivalent entities |
| Effect for the supplier | No output VAT on that transaction | A structural VAT credit, often reclaimed as a refund |
| Effect on the customer's settlement | Neutral if VAT is fully deductible | No effect: the VAT does not pass through |
The purpose is the same in both cases: to prevent VAT being collected by the supplier and never paid over. They are anti-fraud tools, which explains why they apply in specific sectors and under strict rules, with no room for discretion.
02 · Inversione contabile
When the reverse charge applies
The reverse charge applies in cases strictly listed by law, both domestic and linked to transactions with other countries.
- Services received from foreign suppliers: this is the most common case. See invoicing abroad.
- Intra-EU purchases of goods from EU suppliers.
- Subcontracting in construction, between businesses in the building sector.
- Cleaning, demolition, installation of systems and completion services relating to buildings.
- Sales of buildings where the option to charge VAT is taken, in the cases provided for.
- Sales of certain goods: scrap, gold, mobile phones, games consoles, tablets, microprocessors, between VAT-registered businesses.
- The supplier issues an invoice without VAT, stating that the reverse charge applies and citing the legal reference.
- The customer adds the rate and the tax to the invoice, and records it both in purchases and in sales.
- If you are entitled to full deduction, the financial effect is nil: the VAT cancels out between output and input tax.
- If you cannot deduct (flat-rate taxpayers, businesses on a pro rata basis), the VAT added becomes a cost to be paid.
- In the electronic invoice the addition is documented with the prescribed document type codes.
03 · Scissione dei pagamenti
How split payment works
It applies to supplies of goods and services to public bodies and other entities specified by law.
The invoice
The supplier issues an invoice showing VAT, adding a note that the tax is subject to split payment.
The payment
The public body pays the supplier only the taxable amount, withholding the VAT.
Paying over the VAT
The VAT withheld is paid straight to the Treasury by the public body.
For the supplier
The transaction counts towards turnover, but the VAT does not pass through the settlement: this often produces a structural credit.
The cash flow problem
Anyone who works a lot with public bodies knows it well.
- VAT on sales is never collected
- VAT on purchases is paid to suppliers as usual
- The result is a VAT credit that grows every quarter
- The way out is a refund or offsetting, with the time that involves
04 · The most complex sector
The reverse charge in construction
This is the area where most mistakes are made, because whether it applies depends on the type of service and the relationship between the parties.
- Subcontracting in construction triggers the reverse charge when the main contractor and the subcontractor both operate in the building sector.
- Cleaning, demolition, installation of systems and completion services relating to buildings follow the reverse charge whether or not there is a subcontract.
- A direct contract with the end client, by contrast, follows the ordinary rules.
- A private client never applies the reverse charge: VAT is charged in the normal way.
- Supplies with installation must be classified: a supply of goods or a supply of services, with different consequences.
- In works linked to the building bonuses, the correct classification also affects the paperwork for the tax deduction.
The distinction between a supply with installation and a supply of services is not a formality: it depends on whether the obligation to deliver or the obligation to perform prevails. This analysis has to be done on the contract, before the first invoice for the site is issued.
05 · The consequences
What happens if you get it wrong
The penalty system distinguishes between formal errors and errors that result in unpaid tax.
Reverse charge invoice instead of VAT
The customer must regularise, adding and paying the tax due.
VAT not added
A customer who receives a reverse charge invoice and does not add the VAT is penalised, even if they would have deducted it in full.
Proportional penalties
Heavier when the error results in tax not being paid; lighter when the transaction was neutral anyway.
Regularisation
A customer who receives an irregular invoice must act within the time limits to avoid being penalised in turn.
Voluntary correction
Possible before any audit, with reduced penalties. See ravvedimento operoso.
06 · How to manage it
How to keep it under control
Once they are set up correctly, these mechanisms run on their own. All the work is at the start.
- Check which regime applies to each type of transaction: this is done once, not invoice by invoice.
- Set up the correct transaction codes in the accounts, with the nature codes and document type codes of the electronic invoice.
- Check the customer's status: VAT-registered business, public body, private individual.
- Monitor the VAT credit if you do a lot of work under split payment or reverse charge: the refund claim needs to be planned.
- Check invoices received: the duty to regularise irregular ones lies with the recipient.
- Train whoever issues the invoices: most mistakes arise before the figures ever reach the accounts.
If you regularly work under reverse charge or split payment, you build up VAT credits that grow over time. Planning a quarterly refund claim, where the conditions are met, is often more effective than letting the credit build up for the whole year and claiming it in the annual return.
Frequently asked
The questions that keep coming up
I am on the flat-rate scheme. Do I have to apply the reverse charge?
Not on the invoices you issue: you invoice without VAT because you are on the flat-rate scheme, with the wording for that regime.
But on invoices you receive, yes: if you receive a service from a foreign supplier, you must add and pay the VAT, which you cannot deduct. It is a real cost, not a neutral transaction as it is for those who deduct.
I received an invoice with VAT that should have been reverse charged.
You cannot deduct VAT charged in error. The correct route is to ask the supplier for a credit note and a reissued invoice without tax, stating that the reverse charge applies.
The recipient in any case has a duty to regularise within the set time limits: doing nothing exposes you to a penalty too, not only the issuer.
Split payment is tying up my cash. What can I do?
This is the typical effect for those who work a lot with public bodies: VAT on sales is never collected, VAT on purchases is paid, and the credit grows.
The options are a refund claim, quarterly too where the conditions are met, and offsetting against other taxes through the F24 (the Italian tax payment form). It needs to be planned, not left until the last minute.
I do building work for a private client. Do I have to use the reverse charge?
No. The reverse charge in construction concerns transactions between VAT-registered businesses: with a private client, VAT is charged on the invoice in the normal way.
The mechanism applies instead to subcontracts between businesses in the sector and to certain specific services on buildings, such as cleaning, demolition, installation of systems and completion.
Let's talk
A reverse charge mistake is penalised on both sides
The party who issues the wrong invoice and the party who receives it without correcting it. It is worth setting up the codes once, and properly.