VAT: reverse charge for electronic communications services
Published 11 January 2016
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Who is likely to be affected
Businesses involved in making wholesale supplies of certain electronic communications services.
General description of the measure
The measure will introduce a reverse charge for wholesale supplies of electronic communications services which means the customer is liable to account for the VAT rather than the supplier. 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.
Policy objective
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.
Background to the measure
Informal consultation between HM Revenue and Customs (HMRC), HM Treasury and the main trade bodies has been ongoing for over 2 years.
Detailed proposal
Operative date
The operative date will be 1 February 2016.
Current law
Section 1(2) of the VAT Act 1994 (VATA) makes the supplier liable for any VAT on supplies of goods or services.
Section 55A of VATA 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(g) of Directive 2006/112/EC allows member states to provide for a reverse charge for telecommunications services as defined in Article 24(2) of the Directive.
Proposed revisions
A statutory instrument subject to the negative resolution will be made under section 55A of VATA to make taxable persons receiving supplies of electronic communications services liable to account for the VAT due on those supplies (subject to certain exceptions specified in the order).
Summary of impacts
Exchequer impact (£m)
| 2015-16 | 2016-17 | 2017-18 | 2018-19 | 2019-20 | 2020-21 | |
|---|---|---|---|---|---|---|
| Impact | - | - | - | - | - | - |
The final costing will be subject to scrutiny by the Office for Budget Responsibility.
This measure supports the Exchequer in its commitment to protect revenue.
Economic impact
The measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
The measure is not expected to have an impact on individuals and households.
Equalities impacts
There are no impacts on any group which shares a protected characteristic.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on businesses and civil society organisations.
The number of businesses affected by the introduction of a reverse charge for electronic communications services is unknown. However, in consultation with the industry it is believed that the numbers will be in the low 100s.
These businesses will need to familiarise themselves with the change, and may need to modify their IT systems and invoices in order to account for the reverse charge. The one-off implementation costs and ongoing administrative burdens are estimated to be negligible.
Operational impact (£m) (HMRC or other)
This measure will not increase operational costs.
Other impacts
Small and micro business assessment - small businesses will have the same implementation issues as other businesses but the measure is not expected to impact on many small and micro businesses. Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review by communication with affected taxpayer groups.
Further advice
If you have any questions about this change, please contact Nick Chambers on Telephone: 03000 585662 (email: nick.chambers@hmrc.gsi.gov.uk).
Declaration
David Gauke MP, Financial Secretary to the Treasury has read this Tax Information and Impact Note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.