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
When a VAT-registered UK business buys services from a Nigerian supplier and the place of supply is the UK, HMRC's Notice 741A says the business must act as both supplier and customer: it records output VAT on the full value in Box 1 and reclaims it as input VAT in Box 4 under the normal rules, with the net value in Boxes 6 and 7. For a fully taxable business the two entries usually cancel out; a partly exempt business bears a cost.
A Lagos design studio, a Nigerian developer firm or an Abuja research agency will not charge UK VAT on its invoice. That does not mean the purchase is outside UK VAT. Under the reverse charge, the UK customer accounts for the VAT itself. This guide sets out the mechanics from HMRC's VAT Notice 741A, section 5, and the points that come up when the supplier is in Nigeria.
When the reverse charge applies
Notice 741A section 5.1 lists four conditions. The reverse charge applies where:
- the place of supply is the UK;
- the supplier belongs outside the UK;
- you, the customer, belong in the UK; and
- the supply is not exempt (which includes exempt supplies subject to an option to tax).
For most business services bought from Nigeria, such as design, consultancy, software development or marketing, the general B2B rule puts the place of supply where the customer belongs, so the first condition is met when you are a UK business. For services that do not fall under the general rule, section 5.1 adds that you must also be VAT-registered in the UK. Services tied to land, events or transport have their own rules, so check the service type in the notice.
How to account for it
Section 5.2 tells you to act as if you were both the supplier and the recipient. You credit your VAT account with output tax on the full value and debit it with the input tax you are entitled to reclaim under normal rules. On the return:
| Box | What goes in |
|---|---|
| Box 1 | The output VAT you calculate on the service |
| Box 4 | The input VAT you can reclaim on it |
| Box 6 | The full value of the service, as if it were a sale |
| Box 7 | The full value of the service, as a purchase |
Worked example
Example figures only. A UK marketing agency pays a Lagos studio £4,000 for illustration work, with no UK VAT on the invoice. The standard UK rate, per GOV.UK's VAT rates page in October 2026, is 20%.
- Box 1: £800 output VAT (20% of £4,000)
- Box 4: £800 input VAT, if the agency's supplies are fully taxable
- Box 6 and Box 7: £4,000 each
Net VAT payable on this purchase: nil. If the same agency were partly exempt and could reclaim only 60% of its input tax, Box 4 would be £480, and the £320 difference would be a real cost. That is why the reverse charge matters most to businesses with exempt income, such as some financial, insurance or healthcare activities.
Value, currency and Nigerian taxes on the invoice
Section 5.12 says the value is the total amount paid plus any other consideration, and that it includes any foreign taxes levied. If a Nigerian supplier adds a Nigerian tax line to its invoice, that amount forms part of the value on which you reverse-charge UK VAT. Under Nigeria's own rules, exported services are generally zero-rated, so ask the supplier why a Nigerian tax appears before you pay it.
Invoices priced in naira or dollars have to be converted. Notice 700 section 7.6 says you must use the UK market selling rate at the time of supply, or HMRC's published period rates if you adopt them for all supplies or a class of supplies, or a commercial rate HMRC agrees to in writing. Forward rates are not acceptable. Pick one method and keep using it. Notice 741A section 5.13 sends you to Notice 700 for the time of supply.
Effects people miss
- Registration threshold. Section 5.7 says the value of general-rule services you receive from abroad is added to your own taxable supplies for the £90,000 test. See when a UK–Nigeria business must register for VAT.
- Not registered at all. Section 2.6 says a business that only receives reverse-charged services is not entitled to register.
- Records. Notice 700/21 says the VAT account must record tax you account for on a supplier's behalf, and Making Tax Digital software must hold it.
- Nigerian withholding. UK VAT does not change any Nigerian tax position on the supplier; see withholding tax when a UK firm pays Nigerian contractors.
What to check first
- Is the supplier based in Nigeria, and do you belong in the UK?
- Does the service fall under the general B2B rule, or a special rule in Notice 741A?
- Is the service exempt in the UK?
- Which exchange-rate method are you using, and is it the same as last quarter?
- Is the invoice kept with proof of payment for six years?
Where Pryme fits
Paying Nigerian suppliers in naira from a Pryme Business Account leaves a clear record of the amount, date and currency of each payment, which is what you need when converting for the return. The app shows the rate and the fee before you approve a Swap, and the Finance agent can list each quarter's reverse-charge purchases for your accountant to review.
Questions people ask
Do I pay UK VAT on services from a Nigerian supplier?
If you are a UK business and the place of supply is the UK, you account for it yourself under the reverse charge (Notice 741A s.5). If you are fully taxable, the output and input entries usually cancel.
Which VAT return boxes are used for the reverse charge?
Box 1 for output VAT, Box 4 for the input VAT you can reclaim, and the full value in both Box 6 and Box 7, per Notice 741A s.5.2.
What exchange rate do I use for a naira invoice?
Notice 700 s.7.6 allows the UK market selling rate at the time of supply, HMRC's period rates if adopted consistently, or a commercial rate agreed with HMRC in writing.
Does the reverse charge apply if I am not VAT-registered?
Notice 741A s.2.6 says a business that only receives reverse-charged services is not entitled to register, but s.5.7 adds those services to your turnover when you test the £90,000 threshold.
Sources
- HMRC VAT Notice 741A: place of supply of services · accessed Oct 2026
- HMRC VAT guide (Notice 700), section 7.6 foreign currency · accessed Oct 2026
- GOV.UK: VAT rates (updated 30 Sep 2026) · accessed Oct 2026
- HMRC Record keeping (VAT Notice 700/21), updated 18 Mar 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.