VAT Rule Changes for UK Wholesale Telecommunications Supplies

VAT Reverse Charge Mechanism to apply to Certain Wholesale Supplies from 1st February 2016

Certain UK clients have asked me to explain the VAT rule changes for UK wholesale telecommunications supplies, and hopefully this blog will answer those questions.

From 1st February 2016, providers of wholesale telecommunications services in the UK will no longer apply VAT to supplies to other carriers of:

• switched voice calls/minutes (including voip calls)

• SMS and MMS services

• Value added or “over the top” telecom services

• SMS subbing and

• SMS/voice aggregator services.

VAT Reverse Charging: How will the new rules work?

The carrier buying the wholesale telecommunications services (“Carrier B”) from the first carrier (“Carrier A”) will be the carrier required to account to HMRC for the VAT under the reverse charge rules, although it seems that Carrier B will not have to include these services in a Reverse Charge Sales List.

The idea is that if Carrier B onward sells the affected service to a final end customer (business or consumer), then Carrier B will apply output VAT on the services it supplies to its customer using the usual (non reverse charge methodology), collect the VAT from the customer and pay that VAT to HMRC.

If on the other hand, Carrier B onward sells the affected service to another carrier/reseller (“Carrier C”), then the reverse charge mechanism will continue to apply to that supply from Carrier B to Carrier C.

The New Rules Do Not Apply to Supplies to Businesses Buying for their Own Use

Be aware here that we are ONLY talking about the supply of services from one wholesale carrier to another. We are not talking about regular b2b supplies from a carrier to a non-carrier business. If a carrier supplies telecommunications services to a business customer A (“Business Customer A”), where Business Customer A intends either to use those services itself or resell only to its affiliated companies A1, A2, A3 etc, then none of those supplies will be caught by the reverse charge rules. These kinds of supplies will continue to be treated as supplies of telecommunications services to an end customer and not supplies to a carrier subject to the reverse charge rules.

Be aware also that if a customer is not registered for VAT, the carrier will have to charge VAT to that customer directly and not apply the reverse charge mechanism.

Wrinkle: Reverse Charge Mechanism Not Applicable to All Wholesale Supplies

If you thought it was already getting a bit complicated, then the fun really starts building once you realise that even not all wholesale services are covered by the new rules. Carrier to carrier sales of transport/capacity, access services, broadband and data transmission services continue to be subject to regular VAT under the standard rules.

Stunned silence…. Why?

Missing Trader Intra-Community VAT Fraud

Well……the reason for making the distinction in VAT treatment is apparently because is much harder to commit a particular kind of VAT fraud known as missing trader intra-community VAT fraud or on services where there is physical evidence of the service which has been supplied, such as a leased line or an access circuit. What the fraudsters do is buy voice minutes or data value added/over the top services in another EU state without paying VAT on the supply, sell the corresponding services in the UK with UK VAT, and then disappear without paying to HMRC the VAT that they collected from their customers. The UK Government hopes that by changing the VAT treatment for the services most susceptible to intra-community VAT fraud, this should have a net positive effect on HMRC’s tax receipts. Watch this space!

Penalties for Non-Compliance

HMRC has advised that for the first six months, it will be inclined to be sympathetic to businesses which struggle to implement procedures in support of the new rules, but that only gives businesses until 1st August to sort this out, and so if your business is affected by these rule changes but you have not acted yet, now is the time to start.

Hopefully this blog answers any questions on the new VAT treatment of UK wholesale telecommunications supplies but if you would like to read a bit further on this subject, please look at the new statutory instrument itself (SI 2016/12) at and/or the HMRC briefing on this topic at:

Alternatively please feel free to visit our website at or contact me for further advice at