© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
T4. Reverse charge
(fraud prevention)
LEGAL BASIS
- Power to grant derogations
"(1) The Council, acting unanimously on a proposal from the Commission, may authorise any Member State to introduce special measures for derogation from the provisions of this Directive, in order to simplify the procedure for collecting VAT or to prevent certain forms of tax evasion or avoidance.
Measures intended to simplify the procedure for collecting VAT may not, except to a negligible extent, affect the overall amount of the tax revenue of the Member State collected at the stage of final consumption.
(2) A Member State wishing to introduce the measure referred to in paragraph 1 shall send an application to the Commission and provide it with all the necessary information. If the Commission considers that it does not have all the necessary information, it shall contact the Member State concerned within two months of receipt of the application and specify what additional information is required.
Once the Commission has all the information it considers necessary for appraisal of the request it shall within one month notify the requesting Member State accordingly and it shall transmit the request, in its original language, to the other Member States.
(3) Within three months of giving the notification referred to in the second subparagraph of paragraph 2, the Commission shall present to the Council either an appropriate proposal or, should it object to the derogation requested, a communication setting out its objections.
(4) The procedure laid down in paragraphs 2 and 3 shall, in any event, be completed within eight months of receipt of the application by the Commission." (PVD Article 395)
- UK authorisation for derogation (16 April 2007)
"By way of derogation from Article 193 of Directive 2006/112/EC, the United Kingdom is authorised to designate the taxable person to whom supplies of the following goods are made as the person liable to pay VAT:
1. mobile telephones, being devices made or adapted for use in connection with a licensed network and operated on specified frequencies, whether or not they have any other use;
2. integrated circuit devices such as microprocessors and central processing units in a state prior to integration into end user products.
The derogation shall apply in respect of supplies of goods for which the taxable amount is equal to or higher than GBP 5 000." (Council Decision 2007/250/EC)
THE REVERSE CHARGE
Customer who is taxable person required to account for VAT on specified supplies
"(6) If—
(a) a taxable person makes a supply of goods or services to a person (“the recipient”) at any time,
(b) the supply is of goods or services to which this section applies and is not an excepted supply, and
(c) the recipient is a taxable person at that time and is supplied in connection with the carrying on by him of any business,
it is for the recipient, on the supplier's behalf, to account for and pay tax on the supply and not for the supplier." (VATA s.55A)
- Goods or services to which s.55A applies: those specified in order
"(9) For the purposes of this section, goods or services are goods or services to which this section applies if they are of a description specified in an order made by the Treasury." (VATA s.55A)
- Excepted supplies
"(10) For the purposes of this section, an “excepted supply” means a supply which is of a description specified in, or determined in accordance with, provision contained in an order made by the Treasury." (VATA s.55A)
Registration of reverse charge customers
- Reverse charge supplies received treated as contributing to registration threshold in specified circumstances
"(3) The relevant supply, and the corresponding supplies made to the recipient in the month in which the relevant supply is made, are to be treated for the purposes of Schedules 1 and 1A —
(a) as taxable supplies of the recipient (as well as taxable supplies of the person making them), and
(b) in so far as the recipient is supplied in connection with the carrying on by him of any business, as supplies made by him in the course or furtherance of that business,
but the relevant supply, and those corresponding supplies, are to be so treated only in so far as their total value exceeds the disregarded amount." (VATA s.55A)
No disregard of any supply on the ground that it would be a supply of capital assets
"(4) Nothing in subsection (3)(b) requires any supply to be disregarded for the purposes of Schedule 1 on the grounds that it is a supply of capital assets of the recipient's business." (VATA s.55A)
- The specified circumstances (total reverse charge supplies received in excess of £1,000 in month)
"(1) Subsection (3) applies if—
(a) a taxable (but not a zero-rated) supply of goods or services (“the relevant supply”) is made to a person (“the recipient”),
(b) the relevant supply is of goods or services to which this section applies (see subsection (9)),
(c) the relevant supply is not an excepted supply (see subsection (10)), and
(d) the total value of the relevant supply, and of corresponding supplies made to the recipient in the month in which the relevant supply is made, exceeds £1,000 (“the disregarded amount”)." (VATA s.55A)
Corresponding supply
(2) For this purpose a “corresponding supply” means a taxable (but not a zero-rated) supply of goods or services which—
(a) is a supply of goods or services to which this section applies, and
(b) is not an excepted supply." (VATA s.55A)
Value of supply
"(5) For the purposes of subsections (1) and (3), the value of a supply is determined on the basis that no VAT is chargeable on the supply." (VATA s.55A)
- Does not apply to reverse charge construction supplies
"Section 55A(3) of the Act, in so far as it relates to supplies received by a person being treated as supplies made by that person, does not apply in relation to the specified services described in this Order." (SI 2019/892, Article 10)
PHONES AND CPUs
- Specified goods
"For the purposes of section 55A of the Act (customers to account for tax on supplies of goods of a kind used in missing trader intra-community fraud) the goods of a description specified below are goods to which that section applies—
(a)mobile telephones, whether or not they have any function in addition to the transmitting and receiving of spoken messages;
(b)integrated circuit devices, such as central processing units and microprocessor units, in a state prior to integration into end user products." (SI 2007/1417, Article 3)
- Excepted goods (£5,000 threshold, margin supplies, pay as you go, deemed supplies)
"For the purposes of section 55A of the Act, a supply of a description specified below is an excepted supply—
(a) a supply of specified goods where the value of the supply is less than £5000;
(b) a supply of specified goods where the supply is of a description specified in an order made under section 50A(3) of the Act (margin schemes) and, in accordance with such an order, the supplier opts to account for the VAT chargeable on the supply on the profit margin on the supply instead of by reference to its value;
(c) a supply of a mobile telephone where, at the time a person enters into the agreement to purchase the telephone—
(i) he enters into an agreement (including the renewal or extension of an existing agreement) with a provider of a public electronic communications service for the supply, in relation to that telephone, of such a service, and
(ii) that agreement is not one that requires periodical pre-payments in order to use the service (“Pay as You Go”);
(d) a transfer or disposal of specified goods for no consideration that is treated as a supply of goods by virtue of paragraph 5(1) of Schedule 4 to the Act." (SI 2007/1417, Article 4)
£5,000 limit applies to supplies on the same invoice
"Article 4(a) does not apply to a supply of specified goods where—
(a) the supply is particularised on the same VAT invoice as a supply, or supplies, of other specified goods, and
(b) the total value of the supplies equals or exceeds £5000." (SI 2007/1417, Article 5)
TELECOMMUNICATION SERVICES
- Specified supplies
"(1) The services referred to in article 3(1) are telecommunication services which enable—
(a) speech communication instantly or with only a negligible delay between the transmission and the receipt of signals; or
(b) the transmission of writing, images and sounds or information of any nature when provided in connection with services described in sub-paragraph (a).
(2) In this article “telecommunication services” has the meaning given by paragraph 9E(2) of Schedule 4A to the Act." (SI 2016/12, Article 4)
- Excepted supplies (retail supplies, supplies already subject to reverse charge)
"The supplies referred to in article 3(2) are—
(a) a supply of specified services which is not a wholesale supply;
(b) a supply of specified services to which section 8 of the Act (reverse charge on supplies received from abroad) applies." (SI 2016/12, Article 5)
GAS AND ELECTRICITY
- Gas and electricity certificates
"Section 55A of the Value Added Tax Act 1994 (customers to account for tax on supplies of goods or services of a kind used in missing trader F1... fraud) applies to services of a description specified in article 4." (SI 2019/1015, Article 3)
"The services referred to in article 3 are gas and electricity certificates." (SI 2019/1015, Article 4)
- Gas and electricity
"The goods referred to in article 3(1) are—
(a)gas supplied through a natural gas system situated in Great Britain or any network connected to a natural gas system in Great Britain;
(aa) gas supplied through a natural gas system situated within Northern Ireland or the territory of a member State or any network connected to such a system; and
(b) electricity." (SI 2014/1458, Article 4)
Excepted supplies
CONSTRUCTION SERVICES
Inclusion of construction supplies
"(1) Section 55A of the Act (customers to account for tax on supplies) applies to services of a description specified in article 4.
(2) The supplies specified in article 8 are excepted supplies for the purposes of section 55A of the Act." (SI 2019/892, Article 3)
"The services referred to in article 3(1) are construction services as defined in articles 5 to 7 together with any goods supplied with those services which fall to be treated as part of a single supply of services." (SI 2019/892, Article 4)
- Specified construction services
"“Construction services” comprise—
(a)construction, alteration, repair, extension, demolition or dismantling of buildings or structures (whether permanent or not), including offshore installations;
(b)construction, alteration, repair, extension or demolition of any works forming, or to form, part of the land, including (in particular) walls, roadworks, power-lines, electronic communications apparatus, aircraft runways, docks and harbours, railways, inland waterways, pipe-lines, reservoirs, water-mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence;
(c)installation in any building or structure of systems of heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection;
(d)internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration;
(e)painting or decorating the internal or external surfaces of any building or structure;
(f)services which form an integral part of, or are preparatory to, or are for rendering complete, the services described in paragraphs (a) to (e), including site clearance, earth-moving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works." (SI 2019/892, Article 5)
- Not construction services
"Construction services” do not include—
(a)drilling for, or extraction of, oil or natural gas;
(b)extraction (whether by underground or surface working) of minerals and tunnelling or boring, or construction of underground works, for this purpose;
(c)manufacture of building or engineering components or equipment, materials, plant or machinery, or delivery of any of these things to site;
(d)manufacture of components for systems of heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection, or delivery of any of these things to site;
(e)the professional work of architects or surveyors, or of consultants in building, engineering, interior or exterior decoration or in the laying-out of landscape;
(f)the making, installation and repair of artistic works, being sculptures, murals and other works which are wholly artistic in nature;
(g)signwriting and erecting, installing and repairing signboards and advertisements;
(h)the installation of seating, blinds and shutters;
(i)the installation of security systems, including burglar alarms, closed circuit television and public address systems." (SI 2019/892, Article 6)
Unless part of single supply with included construction services
" But the services described in article 6 shall be treated as construction services to the extent that they form part of a single supply that includes services described in article 5." (SI 2019/892, Article 7)
Excluded construction supplies
"(1) Section 55A of the Act (customers to account for tax on supplies) applies to services of a description specified in article 4.
(2) The supplies specified in article 8 are excepted supplies for the purposes of section 55A of the Act." (SI 2019/892, Article 3)
- The excepted supplies
"(1) The supplies referred to in article 3(2) are—
(a)supplies of specified services in respect of which a payment is not required to be included in a return made under regulation 4 of the Income Tax (Construction Industry Scheme) Regulations 2005;
(b)supplies of specified services, not excepted under paragraph (a), which are made—
(i)to an end user; or
(ii)to an intermediary supplier provided that—
(aa)the intermediary supplier is connected with the expected end user of those services; or
(bb)the supplies are made in relation to land, buildings or civil engineering works in which both the intermediary supplier and the expected end user of those services have a relevant interest.
(1A) Where a supply falls within paragraph (1)(b), it shall not be treated as an excepted supply unless the recipient has—
(a)no later than the time that the supply is made, confirmed in writing to the supplier that the requirements specified in paragraph (1)(b) are satisfied in respect of that supply; or
(b)received that supply in pursuance of a written agreement in which the recipient has confirmed that those requirements are satisfied in respect of any supply made under that agreement.
(2) But a supply that would otherwise be an excepted supply under paragraph (1) (as qualified by paragraph (1A)) shall not be treated as an excepted supply if—
(a)at the same time as the making of the supply or at any time before it is made (but not before the commencement of this Order), the supplier makes or has made any other supply of specified services to the same recipient in relation to the same construction site;
(b)that other supply is not or was not excepted under paragraph (1) (as qualified by paragraph (1A)); and
(c)the supplier and the recipient agree that the supply shall not be treated as an excepted supply." (SI 2019/892, Article 9)
- Supplies comprising more than one element: all elements must be excepted
"(1) This article applies where there is a supply of specified services comprising more than one identifiable element.
(2) Where this article applies, the supply is not an excepted supply unless all of those elements, if supplied separately, would be excepted under article 8." (SI 2019/892, Article 9)
COLLECTION AND ENFORCEMENT
- Collect as if it were VAT on supply made by customer
"(7) The relevant enforcement provisions apply for the purposes of this section, in relation to any person required under subsection (6) to account for and pay any VAT, as if that VAT were VAT on a supply made by him.
(8) For this purpose “the relevant enforcement provisions” means so much of—
(a) this Act and any other enactment, and
(b) any subordinate legislation,
as has effect for the purposes of, or in connection with the enforcement of, any obligation to account for and pay VAT." (VATA s.55A)
Non-payment of consideration by reverse charge customer
OTHER
- Reverse charge customer losing entitlement to input credit entitled to output tax adjustment
"(1) This section applies if—
(a) a person is, as a result of section 26A, taken not to have been entitled to any credit for input tax in respect of any supply, and
(b) the supply is one in respect of which the person is required under section 55A(6) to account for and pay VAT.
(2) The person is entitled to make an adjustment to the amount of VAT which he is so required to account for and pay.
(3) The amount of the adjustment is to be equal to the amount of the credit for the input tax to which the person is taken not to be entitled." (VATA s.26AB)