MTIC fraud ― application of the domestic reverse charge for mobile phones and computer chips

By Tolley

The following Value Added Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • MTIC fraud ― application of the domestic reverse charge for mobile phones and computer chips
  • Mobile phones and computer chips
  • VAT treatment
  • Accounting for reverse charge VAT

This guidance note provides an overview of the reverse charge mechanism that was introduced in the UK in respect of certain goods. This note should be read in conjunction with the Missing trader intra-community fraud guidance note.

HMRC has also introduced other anti-avoidance domestic reverse charge measures and more information can be found in the MTIC ― carbon emission trading, Domestic reverse charge ― wholesale trading in electricity, gas and electronic communications services and construction labour and Supplies of non-investment gold guidance notes.

Mobile phones and computer chips

HMRC has requested an EU derogation in order to combat MTIC fraud taking place in the UK and presently the supply of certain specified goods between two UK VAT registered businesses is liable to VAT under the reverse charge. This change was the result of the decision reached in Bond House Systems Ltd v C & E Comrs. Please note that HMRC's derogation in respect of mobile phones and computer chips was effectively replaced by 2013/43/EU  with effect from 15 August 2013. HMRC had stated that the UK will continue to apply the reverse charge to mobile phones, computer chips and emissions allowances until at least the end of 2018 when the amendments made by 2013/43/EU  were due to expire. However this temporary measure has now been extended to 30 June 2022 under Council Directive (EU) 2018/1695  effective from 2 December 2018.

VAT Notice 735 ; VATF44200; VATREVCHG2000; VATA 1994, s 55A; De Voil Indirect Tax Service V3.233 (subscription sensitive); Bond House Systems Ltd v C & E Comrs (Case C-484/03) 

Under the current reverse charge provisions, the customer, rather than the supplier, is required to account for any VAT due on the cost of the goods supplied.

The legislation applies to specified supplies of goods (other than those supplied at the zero-rate and those where the aggregate of

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