Independent: no vendor pays for coverage · Prices in £ with VAT noted · HMRC sources linked · Not tax advice · AI-assisted research, human-checked · How we test · Edited by Annie Vane
If you buy ChatGPT, Claude or another AI subscription as a VAT-registered UK business from a supplier based overseas, you usually shouldn't be charged UK VAT. You account for it yourself under the "reverse charge", which for a fully taxable business costs nothing overall. Consumers pay 20 per cent VAT in the price instead. To get a VAT-free business invoice, add your VAT number to your account's billing settings. Two traps: if you're not VAT registered, these purchases count towards the £90,000 registration threshold today; and from 1 April 2027 suppliers will have to charge VAT to unregistered businesses instead.
Last checked: 31 October 2026 · Written by Annie Vane, editor · Evidence: Documentation review + worked example
Prepared with AI assistance for research and drafting; every HMRC reference was checked by me before publishing. How we test
Key facts
- Consumer plans: overseas suppliers charge UK VAT at 20 per cent, included in the price (e.g. Claude Pro £18 a month including VAT, as checked in our price tracker).
- Business, VAT registered: supplier usually charges no VAT; you apply the reverse charge on your VAT return (HMRC VAT Notice 741A).
- Business, not VAT registered: no VAT is due on the invoice now, but the value counts towards the £90,000 registration threshold.
- From 1 April 2027: the reverse charge will apply only if you're VAT registered. Unregistered businesses will be charged VAT by the supplier (GOV.UK, published 28 October 2026).
- UK-registered supplier? If the invoice shows UK VAT and a GB VAT number, just reclaim it as normal input tax.
Consumer vs business accounts
| You are | What the invoice should show | What you do |
|---|---|---|
| An individual on a personal plan | Price including 20% UK VAT | Nothing. You can't reclaim it. |
| A VAT-registered business, overseas supplier, VAT number added | No VAT, often marked "reverse charge" | Account for VAT yourself on your return (below) |
| A VAT-registered business, supplier charges UK VAT | 20% UK VAT and a GB VAT number | Reclaim as input tax, as for any UK supplier |
| A business that isn't VAT registered | No VAT until 31 March 2027 (if you've told the supplier you're a business); 20% UK VAT from 1 April 2027 | Until 31 March 2027, add the value to your taxable turnover when checking the threshold |
Watch out: if you signed up on a personal plan and pay VAT-inclusive prices, the receipt may not be a valid VAT invoice for your business. Move to a business plan or add your VAT number, and ask your accountant before reclaiming anything.
Reverse charge in plain English
Under HMRC's place-of-supply rules (VAT Notice 741A), most services sold business to business are treated as supplied where the customer belongs. So when a US or Irish AI company sells to a UK business, the supply happens in the UK, but the supplier isn't the one who accounts for UK VAT. You are, if you're VAT registered. That's the reverse charge.
You "charge yourself" the VAT and, if your business makes only taxable sales, reclaim the same amount in the same return. The two cancel out. The point of the rule is fairness: a VAT-registered UK business pays the same VAT whether it buys from a UK or an overseas supplier.
Which boxes on your VAT return
For each reverse-charged AI subscription in the period:
- Box 1: add the VAT you'd have paid (20 per cent of the sterling value)
- Box 4: reclaim the same amount (if it's for taxable business use)
- Box 6: add the net value
- Box 7: add the net value
Worked example (illustrative figures)
A VAT-registered design studio in Bristol pays an overseas supplier for five AI seats. The month's invoice converts to £100 with no VAT shown.
- Box 1: +£20 · Box 4: +£20 · Box 6: +£100 · Box 7: +£100
- Net VAT cost: £0. The studio's cost is £100, the same as the ex-VAT price.
If the studio were partly exempt (say it also makes VAT-exempt financial sales), it might not reclaim all of Box 4, and the reverse charge would then cost money. That's one to check with your accountant.
How to add your VAT number
Adding a VAT number is what tells the supplier you're a business, so it stops charging consumer VAT.
- ChatGPT (OpenAI): businesses can add a VAT number under Workspace settings → Billing. OpenAI's help centre also has an article on adding a Tax ID or VAT ID.
- Claude (Anthropic): go to Settings → Billing (claude.ai/settings/billing), click Update next to your payment method and add your Tax or VAT ID. Anthropic says the change applies to future invoices only, not ones already issued.
- Google (Workspace / Gemini): in the Google Admin console, go to Menu → Billing → Payment accounts, choose More → View payment settings next to your subscription, and edit the tax info section. If you pay by monthly invoice, Google says you need to contact Workspace support instead.
- Microsoft 365 Copilot: Microsoft's UK site shows Copilot prices in GBP excluding VAT. In the Microsoft 365 admin centre, add your VAT number under Billing → Billing accounts → Add tax ID (on older accounts, it goes in the subscription's service usage address). Microsoft's tax page lists the UK among countries where a local Microsoft company is the seller, so check whether your invoice shows UK VAT and a GB VAT number. If it does, reclaim it as normal input tax.
Then download the invoice and check it shows your business name and VAT number, the supplier's details, and either UK VAT or a reverse-charge note.
Dollar invoices and exchange rates
Many AI tools bill in US dollars. Your VAT return needs sterling. Convert using a consistent method, such as HMRC's published monthly exchange rates or the rate your bank charged, and use the same method every time. Our price tracker shows dollar-priced tools converted on the date checked, but that's for comparing prices, not for your VAT return.
Not VAT registered? The threshold trap, and the 2027 change
Now: if you're not VAT registered and buy services from abroad under the reverse charge, HMRC says you must add their value to your taxable turnover when checking the VAT registration threshold (£90,000). A sole trader with £80,000 of sales and £12,000 a year of overseas software and AI subscriptions could cross the threshold without realising.
From 1 April 2027: a GOV.UK policy paper published on 28 October 2026 says the reverse charge will apply only when the buyer is VAT registered. Overseas suppliers will charge UK VAT to unregistered businesses instead. That removes the threshold trap, but your AI subscriptions will cost up to 20 per cent more if you're not registered. Budget for it now.
What to tell your accountant
Send them, once a quarter:
- A list of every AI and software subscription, with the supplier's country.
- Each invoice, showing whether UK VAT was charged or reverse charge applies.
- The exchange-rate method you used for dollar invoices.
- Any personal-plan receipts you've used for business.
If you use AI to prepare your books, see AI agents for accountants for how practices are using it, and UK AI law in practice for the other legal checks on using AI in a UK business.
Frequently asked questions
Do I pay VAT on ChatGPT Business in the UK?
If you're VAT registered and add your VAT number, OpenAI shouldn't charge UK VAT; you apply the reverse charge, which usually nets to zero. Without a VAT number you may be charged VAT as a consumer.
Can I reclaim VAT on my ChatGPT Plus or Claude Pro subscription?
Only if you hold a valid VAT invoice for your business and use it for business. Consumer receipts often aren't enough. Switch to a business plan or add your VAT number.
Do AI subscriptions count towards the VAT threshold?
Today, yes, if you're not VAT registered and they're reverse-charge services from overseas. From 1 April 2027, no: suppliers will charge you VAT instead.
Why does Microsoft show prices excluding VAT?
Business software is usually priced ex VAT. Expect 20 per cent to be added unless reverse charge applies.
Sources
- HMRC, VAT Notice 741A: place of supply of services, gov.uk (read 31 October 2026)
- HMRC manual VATREG16150: services received from abroad and VATPOSS14700: reverse charge registration
- GOV.UK, Reform of the business to business reverse charge for supplies of services from overseas (published 28 October 2026; effective 1 April 2027)
- GOV.UK, Register for VAT
- Anthropic, Add or update your paid Claude account's Tax or VAT ID; Google, Update your tax information; Microsoft, Tax information for Microsoft 365 for business (all read 1 November 2026)
- OpenAI and Microsoft billing details, as summarised in ChatGPT pricing UK and Microsoft Copilot agents UK
Prices in pounds including VAT unless marked "ex VAT". This page explains HMRC rules in plain English, checked against gov.uk on 31 October 2026. It is general information, not tax advice, and the rules may have changed since. For your own VAT return, speak to a chartered accountant or chartered tax adviser. Spotted something out of date? Tell me.
