domestic reverse charge for businesses wholesaling
The government has laid legislation, in the form of a
statutory instrument, to introduce a reverse charge accounting
mechanism (domestic reverse charge) for wholesale supplies of
telecommunications services in the UK. This is in response to the
threat of missing trader intra-community fraud in those supplies.
The purpose of this brief is to provide guidance on how the
domestic reverse charge will operate. It should be read in conjunction
with VAT Notice 735: VAT domestic reverse charge on specified goods and
2. Who should read
Businesses that buy or sell wholesale telecommunications
services in the UK, including:
message hubbing providers
short messaging service (SMS) and voice
A domestic reverse charge means the customer receiving the
wholesale supply of telecommunications services must account for the
VAT due rather than the supplier. In turn the customer deducts the VAT
due on the supply as an input, meaning no net tax is payable to HM
Revenue and Customs (HMRC).
This removes the scope to evade any VAT owing to HMRC.
The UK has introduced similar measures, in response to
criminal threats, for mobile telephones, computer chips, emissions
allowances, gas and electricity.
4. Timing and scope of
The reverse charge will take effect from 1 February 2016 and
will apply to the wholesale buying and selling of telecommunications
services in the UK, subject to certain exceptions.
recognises this timetable may be challenging for some businesses. It
will be adopting a ‘light touch’ approach regarding penalties to help
those who are making reasonable efforts to comply but may not be able
to do so in time - see paragraph 5.6.
is covered by the reverse charge
Subject to certain exceptions, the domestic reverse charge
will apply to all wholesale supplies of telecommunications services
between counterparties established in the UK. This will typically mean
transmission or carriage services of airtime and telephony related
The reverse charge will cover telecommunications services
speech communication instantly or with only a negligible
delay between the transmission and the receipt of signal
the transmission of writing, images and sounds or
information of any nature when provided in connection with services
Examples of services covered by the reverse charge include:
wholesale switched voice services, including switched voice
over internet protocol (VOIP)
and multimedia messaging service (MMS)
services (eg push messages)
wholesale “Over The Top” telecommunications messages
and voice aggregator services
The above list is not exhaustive.
4.2.2 What is
meant by ‘wholesale supplies’
In terms of the reverse charge wholesale supplies takes its
normal meaning of being business to business supplies where the
intention is to sell on the supply with no or negligible consumption of
the supply by the businesses concerned.
For telecommunications services it means supplies between
carriers of these services (in the UK), or supplies of these services
to network operators for onward supply to the consumer or user of the
The domestic reverse charge will not apply in the following
transport/capacity and related access services (i.e.
wholesale line rental, lease lines)
Indefeasible Right of Use charges (IRUs)
broadband and other data transmission only services
supplies for final consumption
supplies to a member of a corporate group for onward supply
within that corporate group, and where the corporate group members
consume that supply
the return of unused minutes that were not originally
subject to the reverse charge
supplies where Schedule 10A of the VAT Act 1994 (face value
businesses not registered or liable to be registered for VAT
4.4 Incidental or
There may be supplies which contain a mixture of reverse
charge and non-reverse charge supplies, for example supplies to mobile
virtual network operators (MVNOs),
and it’s impossible or impractical to separate out the element subject
to the reverse charge. In these cases it’s acceptable for the reverse
charge to apply to the whole supply.
5. The domestic
reverse charge mechanism
5.1 How does the
domestic reverse charge mechanism work?
Under the domestic reverse charge, it’s the responsibility of
the customer, rather than the supplier, to account to HMRC for VAT on
supplies of telecommunications services. It will only apply to business
to business transactions in the UK where those businesses are
registered or liable to be registered for VAT.
This is the same as the mobile phone, computer chip, emissions
allowances, gas and electricity domestic reverse charges.
5.2 The de minimis
rule and Reverse Charge Sales List
As is the case with the emissions allowances, gas and
electricity domestic reverse charges:
there is no ‘de minimis’ rule excluding supplies under
£5,000 so the domestic reverse charge applies to all supplies of
electronic communications services, except where those supplies are
businesses are not required to complete a Reverse Charge
5.3 Completion of the
Suppliers of goods or services under the domestic reverse
charge must not enter any output tax on sales to which the domestic
reverse charge applies in box 1 of the VAT Return. The value of such
sales must be entered in box 6.
Customers must enter the output tax on purchases to which the
domestic reverse charge applies in box 1 of the VAT Return. The value
of such purchases must not be entered in box 6.
They must reclaim the input tax on their domestic reverse
charge purchases in box 4 of the VAT Return and include the value of
the purchases in box 7, in the normal way.
When making a supply to which the domestic reverse charge
applies, suppliers must:
show all the information normally required to be shown on a
make a note on the invoice to make clear that the domestic
reverse charge applies and the customer is required to account for the
The amount of VAT due under the domestic reverse charge should
be clearly stated on the invoice but shouldn’t be included in the
amount shown as total VAT charged.
Under EC law and the VAT Regulations 1995, invoices for
domestic reverse charge supplies, when the customer is liable for the
VAT, must include the reference ‘reverse charge’. The following
examples fulfill the legal requirement:
Reverse charge: VAT Act 1994 Section 55A applies
Reverse charge: S55A VATA
Reverse charge: Customer to pay the VAT to HMRC
5.5 Tax points
The provision of a telephonic service is a continuous supply
of services. The tax points are therefore the issue of a VAT invoice or
the receipt of payment, whichever is earlier (Regulation 90 of the VAT
Regulations 1995). Additionally, in certain circumstances, where there
is a delay beyond one year in issuing a VAT invoice or receiving
payment, an annual tax point will apply (Regulation 94B(5) of the VAT
understands the difficulties businesses may have in implementing the
domestic reverse charge and will apply a light touch in dealing with
errors that occur in the first 6 months after introduction.
5.7 Further guidance
on the application of the domestic reverse charge
Detailed guidance on the other domestic reverse charges can be
found in VAT Notice 735: VAT domestic reverse charge on specified goods
and services. This will be updated in due course to include guidance
for telecommunications services.
6. Current law and
6.1.1 Current law
Section 1(2) of the VAT Act 1994 makes the supplier liable for
any VAT in supplies of goods or services.
Section 55A of VAT Act 1994 provides that the recipient of a
supply must account for the VAT due on supplies of a kind specified in
an order made by the Treasury.
EU legislation in Article 199a of Directive 2006/112/EC allows
member states to provide for a domestic reverse charge for supplies of
telecommunications services as defined in Article 24(2) of the
6.1.2 Draft legislation
A statutory instrument will bring the relevant changes into