This measure will introduce a domestic reverse charge for wholesale supplies of electronic communications services. The reverse charge will apply to the services of routing telephone calls and associated data (text, images) over landlines, mobile networks or the internet. It does not apply to non-wholesale supplies or to businesses not registered or not liable to be registered for VAT. This is an anti-fraud measure which removes the opportunity for fraudsters to charge VAT and then go missing before paying it over to the Exchequer in Missing Trader Intra-Community (MTIC) fraud. The changes will take effect from 1 February 2016.
A policy paper has been published. This takes the form of a Tax Information and Impact Note (TIIN) and can be accessed here. The implementing Statutory Instrument has now been published here and a brief explanatory memorandum has also been published here. A Brief is expected shortly.
According to the SI, the specified supplies to which the reverse charge will apply are:
Telecommunications services that enable:
- speech communication instantly or with only a negligible delay between the transmission and the receipt of signals; or
- the transmission of writing, images and sounds or information of any nature when provided in connection with services described in (a).
Items excepted from the reverse charge are:
- a supply of specified services which is not a wholesale supply;
- a supply of specified services to which section 8 of the VAT Act 1994 applies.
This means that wholesale supplies of voice and voice related transmissions of data, pictures and sounds will be subject to the reverse charge. Where there are bundled or composite supplies which contain reverse charge items as well as other non-reverse charge items, for example supplies to a mobile virtual network operator, HMRC would normally expect the reverse charge to apply to the whole supply if specified services are the main or dominant part of the supply. Likewise, if a specified service forms only a minor part of a composite supply HMRC would not expect it to be carved out for the reverse charge to apply to it.
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