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HMRC internal manual

VAT Reverse Charge

HM Revenue & Customs
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The reverse charge: Checking that the customer is 'bona fide': Disaggregation of purchases

HMRC is aware of cases where customers have artificially disaggregated their purchases of goods in order to fall below the de minimis limit (see paragraphs 6, 8.7 and 9.5 of Notice 735, and VATF45200). These customers then aggregate the onward supply of those goods so that it exceeds the limit. In this way the customer can reclaim the input tax but does not pay any output tax.

Example: A taxable person purchases 100 mobile phones from one retail outlet, each phone having an individual VAT exclusive value of £500. Instead of making one purchase of 500 phones, which would bring the value above the de minimis limit, the taxable person makes 100 purchases - in other words he purchases the phones one-by-one - and reclaims the input tax.

As explained in paragraph 1.1 of the notice, the reverse charge is an anti-fraud measure. In applying the measure HMRC is entitled to make a reasonable interpretation of what is meant by ‘the supply’ for reverse charge purposes (paragraph 7(a) of the VAT (Section 55A)(Specified Goods and Services and Excepted Supplies) Order 2010), since if it were left open to any business to simply treat each purchase of a specified goods as a separate supply then the reverse charge measure would be completely ineffective. To counter this HMRC believes that the policy of applying the £5,000 threshold by reference to the value of purchases per outlet or supplier per day represents a reasonable and proportionate application of the reverse charge measure.

In the example above, HMRC would view this as artificially disaggregating the supply and so, to measure whether the de minimis limit is breached or not, add the individual VAT exclusive values together. In this example the aggregated value would be £50,000 and so the de minimis should have been applied.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000) VATREVCHG23200(This content has been withheld because of exemptions in the Freedom of Information Act 2000)