With effect from 1 February 2016 businesses who buy or sell wholesale telecommunications services in the UK may need to review how they treat their business transactions with regard to VAT.
This change now means that a customer receiving a wholesale supply of telecommunications services, must account for the VAT as opposed to the seller. The way in which this is done is through a domestic reverse charge.
Who does this affect?
This change will impact any wholesale buyer of telecoms services (i.e. any business to business transactions) in the UK in which the intention of the buyer is to sell on the supply with no (or negligible) consumption of the supply.
HMRC has indicated that affected services would include (but not be limited to):
- wholesale switched voice services (including VOIP services)
- wholesale SMS and MMS services
- wholesale “Over The Top” telecommunications messages
- SMS hubbing
- SMS and voice aggregator services
How does the domestic reverse charge work?
The reverse charge mechanism will be a familiar foe for businesses dealing with international supplies of services. Put simply, the supplier does not charge VAT on its supply, instead the onus is on the customer to report the sale (output) and purchase (input) on its VAT return – effectively neutralising the VAT position.
The domestic reverse charge works in much the same way although the VAT treatment will differ depending on whether your business is the supplier or customer:
Suppliers – Must report the sale in box 6 of the VAT return but not enter any output tax on the sale in box 1. Your invoice must make clear that the domestic reverse charge applies.
Customers – Must enter the output tax on the purchase in box 1 of the VAT Return but not include any value in box 6. They must then reclaim the input tax on the supply in box 4 of the VAT Return and also include the net value in box 7 (in the normal way).
Why has this rule been introduced?
The Government has introduced these measures in an effort to counter tax evasion which therefore means that very little warning has been given. In recognising the impact these changes will have on the businesses affected, HMRC have said they will be adopting a “light touch” approach regarding penalties to assist those making reasonable efforts to comply.
If you believe that you may be affected by these changes and wish to talk this through with one of the Inspire team then please ket us know.
Contact Ellen: firstname.lastname@example.org ; 01202 717867
Ellen Benjamin, ATT, LLB (Hons), Personal Tax Senior