AI agents for business finance: what they can and can't do
What AI agents can do in bookkeeping, close, collections and compliance today, where a person must stay in charge, and how to judge a product.
The short answer
Nigerian costs carry no UK input VAT: the UK return only reclaims UK VAT shown on valid VAT invoices, and Nigerian VAT on a Nigerian bill is not UK VAT. Business services you buy from a Nigerian supplier are different: under HMRC's VAT Notice 741A, a VAT-registered UK business usually applies the reverse charge, entering the same amount as output tax in box 1 and input tax in box 4, which nets to nil if you make only taxable supplies.
What a UK VAT return can reclaim
GOV.UK's guidance on reclaiming VAT on business expenses (updated 30 October 2024) says you can reclaim VAT if you are VAT-registered, the purchase is for the business, and you have valid VAT invoices. You cannot reclaim VAT on purely personal use, on costs used to make exempt supplies, or on business entertainment, among other exclusions. The guidance is written entirely about UK VAT. A hotel bill in Abuja or a co-working invoice in Lagos that shows 7.5% Nigerian VAT is not a UK VAT invoice, so that Nigerian VAT has no place in box 4.
That does not make the cost useless. The full amount, including any Nigerian VAT you could not recover, is a business cost in your accounts. Whether Nigerian VAT can be recovered in Nigeria is covered in recovering Nigerian VAT as a UK company.
Three kinds of Nigerian spend
| Type of cost | UK VAT return treatment |
|---|---|
| Costs incurred in Nigeria (hotels, local transport, meals, co-working) | No UK VAT to reclaim; record the full cost, outside the VAT boxes for input tax |
| Business services bought from a Nigerian supplier (developers, designers, support) | Usually the reverse charge: boxes 1, 4, 6 and 7 |
| Goods imported from Nigeria into the UK | Import VAT rules apply; not covered here |
The reverse charge on services from Nigeria
HMRC's VAT Notice 741A (section 5.1) says the reverse charge applies where the place of supply is the UK, the supplier belongs outside the UK, you belong in the UK and the supply is not exempt. Section 5.6 says a UK business receiving general-rule business-to-business services from an overseas supplier generally accounts for the reverse charge. Section 5.2 sets out the return entries:
- Box 1: output tax on the full value of the supply, at the UK rate.
- Box 4: the same amount as input tax, to the extent you can recover it under the normal rules.
- Box 6: the full value, as if it were a sale.
- Box 7: the full value, as a purchase.
Section 5.4 explains the effect: if the input tax relates to taxable supplies, the reverse charge has no net cost. If you make exempt supplies, you effectively pay UK VAT on the service.
Worked example
This is an example only. A VAT-registered UK agency that makes only taxable supplies pays a Lagos developer's company £5,000 for a month's work. The UK standard rate is 20%.
| Box | Entry | Amount |
|---|---|---|
| Box 1 | Output tax: £5,000 × 20% | £1,000 |
| Box 4 | Input tax, fully recoverable | £1,000 |
| Box 6 | Net value | £5,000 |
| Box 7 | Net value | £5,000 |
| Net VAT effect | £1,000 − £1,000 | £0 |
If the agency also spent £800 on a Lagos hotel that charged Nigerian VAT, that £800 is simply a travel cost. Nothing goes in box 4 for it.
If you are not VAT-registered
Notice 741A section 5.7 says that if you are not registered, the value of general-rule business services you receive from overseas suppliers counts towards the UK VAT registration threshold. A small UK company paying a sizeable Lagos team can cross the threshold this way without any increase in its own sales. Watching the line is covered in the UK VAT threshold for a Nigerian founder.
Partly exempt businesses
The reverse charge only nets to nil when the input tax relates to taxable supplies. A business that makes some exempt supplies, such as certain financial, insurance or education services, can recover only part of its input tax, so part of the reverse-charged VAT becomes a real cost. Notice 741A section 5.4 makes the point directly. If that applies to you, the reverse charge on a Lagos team's invoices should be built into your partial exemption calculation, and your accountant should check the recovery percentage each period.
Common errors
- Putting Nigerian VAT shown on a local receipt into box 4.
- Leaving Nigerian supplier invoices out of boxes 6 and 7 because no VAT was paid.
- Forgetting the reverse charge entirely because the supplier did not mention UK VAT; the obligation sits with you, not the supplier.
- Converting invoices at a different rate from the one recorded in your accounts.
Records to keep
- The Nigerian supplier's invoice, showing that the supplier belongs outside the UK.
- Your workings for the reverse charge on each return.
- Receipts for costs incurred in Nigeria, even though they carry no UK VAT.
- The exchange rate used to convert naira or dollar invoices to sterling.
The invoice details to ask for are in invoices you need from a Nigerian contractor.
Where Pryme fits
In a Pryme Business Account, the Finance agent can tag Nigerian supplier payments for the reverse charge and gather invoices and payment records for your accountant before each return; a person reviews and files. Verifiable receipts from VerifyDoc.ai give you a record of each payment that anyone can check.
Questions people ask
Can I reclaim Nigerian VAT on my UK VAT return?
No. The UK return reclaims UK VAT on valid VAT invoices. Nigerian VAT is a cost in your accounts, not UK input tax.
Do I apply the reverse charge to a Nigerian developer's invoice?
Usually, if you are VAT-registered and the service is a general-rule business service. Notice 741A sets out the box 1, 4, 6 and 7 entries.
Does the reverse charge cost me anything?
Not if the input tax relates to taxable supplies; box 1 and box 4 cancel out. If you make exempt supplies, it is a real cost.
Do Nigerian services count towards the VAT threshold?
Yes, if you are not registered. Notice 741A section 5.7 says general-rule services received from overseas count towards the threshold.
Sources
- GOV.UK: Reclaiming VAT on business expenses (updated 30 Oct 2024) · accessed Oct 2026
- HMRC VAT Notice 741A: Place of supply of services (sections 5.1 to 5.10) · accessed Oct 2026
- GOV.UK: Charge, reclaim and record VAT (updated 30 Oct 2024) · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.