VAT Reverse Charges for Telecoms

In response to the threat of missing trader intra-community fraud the government have introduced a reverse charge mechanism for wholesalers of telecoms services. This could impact relatively small companies from 1 February 2016.

What is a reverse charge?

Businesses who buy services from other businesses (B2B supplies) across international borders are familiar with the system of reverse charge for VAT. The supplier doesn’t charge VAT on the service, but the customer adds VAT at their local rate, and includes that amount of VAT in their VAT return as part of sales (output VAT) and with purchases (input VAT).

What’s changing?

This system of reverse charge is to be extended to wholesale telecom services supplied within the UK on and after 1 February 2016. The services covered include: routing telephone calls and associated data (including text and images) over landlines, mobile networks or the internet (e.g. VOIP calls).

Who is affected?

The wholesale buyer of the telecoms services, who sells on the service with little or no consumption, will have to apply standard rate VAT to their purchases and to their sales. These buyers are sometimes referred to as ‘carrier hotels’. The large telecoms providers will not add VAT to the telecoms services provided to those wholesales.

This change is expected to apply to hundreds of businesses that buy and sell wholesale telecoms services. You don’t need much more than a powerful set of computer servers, technical knowledge and marketing skills to set up as a carrier hotel.

Penalties

Penalties will apply for non-compliance with the new reverse charge rule. HMRC acknowledges businesses have had very little warning to implement these changes and has said for the first six months they will apply a light touch.

If you have any questions regarding the content of this article, please contact David Barraclough, VAT specialist at Wright Vigar, on 01522 531341 or email him at david.barraclough@wrightvigar.co.uk – we would be delighted to be able to assist you.

For the full Revenue & Customs Brief 01/2016 on the gov.uk website here.