VAT reverse charge for mobile phones and computer chips

While much attention has been focused on the new VAT reverse charge for construction, it is important to remember that a similar reverse charge has been in place for several years for the wholesale of mobile phones and computer chips. This measure was introduced to combat 'Missing Trader Intra-Community' (MTIC) or 'carousel' fraud.

If your business buys or sells these items, strict compliance with the reverse charge rules is essential to avoid HMRC penalties and potential joint and several liability for unpaid VAT.

When does the reverse charge apply?

The reverse charge applies to business-to-business (B2B) sales of mobile phones and computer chips within the UK, where the total value of the supply on an invoice exceeds £5,000. If the value is below £5,000, normal VAT rules apply.

Under the reverse charge, the supplier does not charge VAT on the invoice. Instead, the buyer must account for the VAT on their own VAT return (declaring it as both output tax and input tax, resulting in a nil net effect, assuming they are fully taxable). The supplier's invoice must clearly state that the reverse charge applies.

Due diligence is critical

Because MTIC fraud is highly organised, HMRC expects businesses trading in these goods to carry out rigorous due diligence on their suppliers and customers. You must verify the VAT registration details of the businesses you trade with and assess the commercial viability of the transactions.

If HMRC determines that you knew, or should have known, that your transactions were connected to fraudulent evasion of VAT, you can be denied the right to recover input tax, leaving your business liable for the loss.