Guidance

VAT: reverse domestic charge for telecommunications services

This guide applies to your wholesale electronic communications supplies providing speech and associated services. It explains how your VAT invoices will be affected by the reverse charge.

This reverse charge is designed to prevent wholesale supplies of telecommunication services from being exploited for missing trader intra-community (known as MTIC) fraud. It was introduced by the Value Added Tax (Section 55A) (Specified Services and Excepted Supplies) Order 2016.

How the reverse charge applies

If you’re a service carrier in the telecommunications industry, your supplies will be subject to the reverse charge if you’re making wholesale supplies to one of the following in the UK:

  • other service carriers
  • network operators to supply users, such as consumers

You can only use the reverse charge for business to business sales where both businesses are registered or liable to be registered for VAT. However, there are no value thresholds for your sales.

Where the reverse charge applies, your customer will account for the VAT instead of you as the supplier.

Customers

How you use the reverse charge can be affected by your customers’ situation. You can find more detailed information on checks you can carry out on your customers, to ensure you apply the reverse charge correctly, in VAT Notice 735: VAT domestic reverse charge on specified goods and services.

Supplies within the charge

All your wholesale supplies of telecommunications services to counterparties established in the UK will be subject to the reverse charge, with certain exclusions.

The reverse domestic charge applies to:

  • speech communication with no, or almost no, delay between the signal being transmitted and received, including switched voice over internet protocol services
  • transmission of:
    • writing, such as wholesale short messaging services (SMS)
    • images, including wholesale multimedia messaging services
    • sounds

Specific examples include, but are not limited to:

  • wholesale ‘Over The Top’ telecommunications messages
  • SMS hubbing
  • SMS and voice aggregator services

Exclusions

The domestic reverse charge won’t apply to:

  • data transmission only services, such as broadband
  • indefeasible right of use charges
  • wholesale line rental and lease lines
  • supplies:
    • within Schedule 10A or section 8 of the VAT Act 1994, which relate to face value vouchers and supplies from abroad
    • to a corporate group for onward supply and consumption within that corporate group
  • return of unused minutes not originally within the reverse charge

Multiple supplies

If you’re supplying a combination of services, some within and some outside the reverse charge, you can separate them to apply the reverse charge only to those within.

If, however, it’s impossible or impracticable for you to separate the services in this way, you can treat the whole supply as within the reverse charge.

Invoicing

In addition to all the normal information required for a VAT invoice, you must also make a clear note on the invoice that:

  • the domestic reverse charge applies
  • the customer must account for the VAT

If the computer system you use for producing VAT invoices can’t show the amount due under the reverse charge, you should read section 7.5.1 of VAT Notice 735.

Tax points

Your provision of a telephonic service is a continuous supply of services. The tax points you will have to use are the earlier of:

  • the issue of a VAT invoice
  • the receipt of payment

In certain circumstances, where there is a delay beyond one year in your issuing a VAT invoice or receiving payment, an annual tax point will apply.

Sales list

You don’t need to complete a reverse charge sales list for supplies within the telecommunications services VAT reverse charge.

Penalties

Due to the short time between this reverse charge having been announced and it coming into effect, HM Revenue and Customs applied a light touch in respect of penalties for errors for the first 6 months from the reverse charge having started.

VAT Notice 735: VAT domestic reverse charge on specified goods and services. This notice explains the reverse charge on specified goods and services.

VAT Reverse Charge Manual.

VAT Notes 1 of 2016. This note explains changes to VAT for businesses.

Published 18 August 2016