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    VAT changes on wholesale telecoms come into force

    The UK Government, in attempt to counter what is known as ‘Carousel Fraud’, has introduced a new VAT accounting mechanism for users of wholesale telecoms. From 1 February, the customer using the wholesale telecoms services is liable to claim the VAT rather than the supplier.

    A domestic reverse charge means the customer receiving the wholesale supply of telecommunications services must account for the VAT due rather than the supplier. In turn the customer deducts the VAT due on the supply as an input, meaning no net tax is payable to HM Revenue and Customs (HMRC). This removes the scope to evade any VAT owing to HMRC.

    The UK has introduced similar measures, in response to criminal threats, for mobile telephones, computer chips, emissions allowances, gas and electricity.

    The new rule applies to anyone in the UK buying services from airtime carriers, network operators, message hubbing providers and short messaging service (SMS) and voice aggregators.

    Subject to certain exceptions, the domestic reverse charge will apply to all wholesale supplies of telecommunications services between counterparties established in the UK. This will typically mean transmission or carriage services of airtime and telephony related data.

    The reverse charge will cover telecommunications services which enable:

    • speech communication instantly or with only a negligible delay between the transmission and the receipt of signal
    • the transmission of writing, images and sounds or information of any nature when provided in connection with services described above

    Examples of services covered by the reverse charge include:

    • wholesale switched voice services, including switched voice over internet protocol (VOIP) services
    • wholesale SMS and multimedia messaging service (MMS) services (eg push messages)
    • wholesale “Over The Top” telecommunications messages
    • SMS hubbing
    • SMS and voice aggregator services

    The above list is not exhaustive, warns HMRC on its website.

    The domestic reverse charge will not apply in the following circumstances:

    • non-wholesale supplies
    • transport/capacity and related access services (i.e. wholesale line rental, lease lines)
    • Indefeasible Right of Use charges (IRUs)
    • broadband and other data transmission only services
    • supplies for final consumption
    • supplies to a member of a corporate group for onward supply within that corporate group, and where the corporate group members consume that supply
    • the return of unused minutes that were not originally subject to the reverse charge
    • supplies where section 8 of the VAT Act 1994 (reverse charge on supplies received from abroad) applies
    • supplies where Schedule 10A of the VAT Act 1994 (face value vouchers) applies

    businesses not registered or liable to be registered for VAT.

    You can find out more here.

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