Newsletter Spring 2016

New VAT treatment for telecoms services

Where your business buys services from businesses based in other countries, you should apply the VAT 'reverse charge' to those services. The supplier doesn't charge you VAT on the service, but you add VAT at the rate that applies to the service in the UK. You then include that amount of VAT on your VAT return as part of sales (output VAT) and also as part of VAT suffered on purchases (input VAT).

Services purchased within the UK are not normally subject to a reverse charge, as the supplier charges VAT in the normal way. However, this has changed for wholesale telecom services supplied within the UK on and after 1 February 2016.

The services covered include routing telephone calls and associated data over landlines, mobile networks or the internet (e.g. Voice Over Internet Protocol calls). The VAT change only affects business-tobusiness sales, where the intention is to sell on the telecoms service with little or no consumption (sometimes known as 'carrier hotels').

This VAT change was introduced with only two weeks notice, as it is part of an anti-fraud drive. Penalties will apply for non-compliance, but HMRC will apply a light touch for the first six months, as it realises businesses have had very little warning before implementing the changes. We can help you decide when you have to apply a reverse charge of VAT.