HMRC has published a policy paper explaining a change to the VAT treatment of mobile phone usage. What do you need to know from November 2017?
Current: VAT is charged when you use your mobile phone within the EU, but not when you use it outside. This is due to the ‘use and enjoyment’ rule. Outside the EU, usage is treated as taking place where the service is consumed, not where the customer lives (as is the case for EU usage).
Example: Sian lives in Basingstoke. She goes on holiday to Brisbane, Australia, i.e. outside the EU, VAT is not charged.
Inconsistent: This approach was adopted before the EU decided to follow the current place of supply rules for telecommunication services. These apply VAT in the country where the user of the phone lives. There is therefore a discrepancy between UK and EU treatment.
Change: The UK will adopt the EU approach from 1 November 2017 when it will be irrelevant where the user of the phone lives. There is therefore a discrepancy between UK and EU treatment.
Impact: The obvious impact is increased costs for outside-EU usage. If you pay for mobile phones for business use by employees who travel internationally, you are likely to notice this. The good news is that if you are a VAT-registered business, the rules currently allow you to reclaim all input tax suffered – even if there is private use of the phone.
Tip: If you recharge your employees for private calls, you can still recover the VAT in full, but remember to account for the output tax on the amount you charge them.
From 1 November 2017 all UK mobile phone usage will be subject to UK VAT – even if it takes place outside the EU. The good news is that if your business is affected you can reclaim all the VAT, even if there is private use.