Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

VAT Fraud

HM Revenue & Customs
, see all updates

What to consider prior to determining whether to use an intervention: matters to consider when looking at particular types of taxable person or activity: box breaking and box consolidation: what is 'box breaking' and ‘box consolidation’?

Box breaking

Simply put, box breaking is the purchase of handsets ‘locked’ into particular networks from retail outlets (supermarkets, stores or network retail shops) in the UK, which are then ‘unlocked’ so that they can be used on any network. These unlocked phones are then sold, at a profit, to entities within countries where there are little or no subsidies. When a box breaker purchases ‘locked’ phones with the intention of unlocking them and selling them at a profit, the retailer and network provider lose money. This is because phones purchased in the UK that are not ‘locked’ to a network cost more than those that are.

Although the unlocking of the phones by the box breaker may breach the supplier’s/manufacturer’s terms of sale, it is not an illegal activity.

Box breaking on a large scale can require a substantial number of individuals to buy and reconfigure the handsets (‘runners’). These individuals might be employees, agents, friends, family etc (VATF36232). In addition, extensive warehousing or storage facilities will be required. The most significant cost of the box breaking operation is the purchase of the phones. Other costs include reconfiguring the handset for the intended customer market, handling stock, working capital and shipping.

Box consolidation

Box consolidators work in much the same way as box breakers, except the mobile phones purchased are not locked into any network (usually described as ‘sim free’). Again, they use ‘runners’ to make individual purchases of mobile phones from retail outlets, sometimes up to a hundred purchases from one retail store, and then ‘consolidate’ those purchases for onward sale.

Method of payment

It is usual for box breakers and box consolidators to pay for the mobile phones in cash or using gift cards rather than bank transfers, credit or debit cards. It is also usual to find them being paid in cash by their customers.

When visiting a taxable person involved in box breaking or box consolidation you should consider the issues set out in VATF36230.