Reverse charge on mobile phones, chips and specified goods

Outside construction, the UK domestic reverse charge applies to business to business sales of mobile phones and computer chips where the VAT exclusive value on the invoice is £5,000 or more, and to wholesale gas, wholesale electricity, wholesale telecommunications services, emissions allowances and renewable energy certificates whatever the value. The seller invoices without VAT and the buyer accounts for the output tax and reclaims it as input tax on the same return, so no VAT changes hands and there is nothing for a fraudster to steal.

Why does the domestic reverse charge exist?

VAT Notice 735, paragraph 1.1, describes the domestic reverse charge as an anti fraud measure designed to counter criminal attacks on the UK VAT system. In missing trader fraud a seller collects VAT from its customer and disappears without paying it over, while the customer reclaims it. Moving the liability to the customer removes the cash that made the fraud worthwhile.

The legal basis is section 55A of the VAT Act 1994, with the goods and services specified by statutory orders including SI 2010/2239, SI 2014/1458, SI 2016/12 and SI 2019/1015. This domestic procedure is separate from the reverse charge on services bought from overseas, explained in place of supply of services, and from the construction reverse charge, which has its own rules.

Which goods and services are covered, and from when?

Specified supply	Reverse charge from	Value threshold
Mobile phones	1 June 2007	£5,000 per invoice
Computer chips	1 June 2007	£5,000 per invoice
Emissions allowances	1 November 2010 (amended 1 May 2021)	None
Wholesale gas and electricity	1 July 2014	None
Wholesale telecommunications services	1 February 2016	None
Renewable energy certificates	14 June 2019	None
Construction services	1 March 2021	Separate rules

Paragraph 3.6 explains that from 1 May 2021 the emissions allowance reverse charge was extended to allowances under the UK Emissions Trading Scheme, while certain Certified Emission Reductions and Emission Reduction Units dropped out. Paragraph 3.8 covers Guarantees of Origin, Renewable Obligation Certificates, REGOs and similar certificates, unless they are supplied as part of a power contract, in which case they are treated as part of the single supply of power.

What counts as a mobile phone or a computer chip?

Paragraph 3.3 gives a mobile phone its everyday meaning: a handset with a cellular voice function, whether or not it does other things, or a device within commodity codes 8517 11 00 or 8517 12 00. It includes phones sold with accessories as a single package, pay as you go phones, phones locked to a network but sold without an airtime contract, and smart watches with their own phone function that are not paired to a phone.

It excludes phones sold with an airtime contract, accessories sold separately, walkie talkies, tablets, and smart watches or data cards that need pairing. Paragraph 3.4 limits computer chips to items within commodity code 8542 3190 00, such as CPUs, microprocessors, microcontrollers and chipsets, in a state before integration into end user products and sold separately. Servers, laptops, desktops and tablets are outside the reverse charge.

How does the £5,000 threshold work?

Paragraph 6.1 says the de minimis applies only to mobile phones and computer chips. It is tested per invoice: if the total VAT exclusive value of phones or chips on an invoice is £5,000 or more, the reverse charge applies to the whole value on that invoice. There is no exclusion for the first £5,000.

• Mixed invoices. Other items on the same invoice do not count towards the threshold. An itemised invoice for a single supply of a computer stays standard rated even if some components are chips (paragraph 6.2).
• One order, several invoices. If a purchase order exceeds £5,000 but is invoiced in smaller deliveries, both parties may agree to apply the reverse charge to all of them (paragraph 6.3).
• Discounts. Use the discounted value for unconditional discounts but the full invoice value where a discount is contingent or delayed (paragraph 6.4).
• Disaggregation. Orders kept below £5,000 for no commercial reason are a warning sign. If the customer is verified as VAT registered, apply the reverse charge; if there is reasonable doubt about its registration, charge VAT at the standard rate (paragraph 9.3.3).

What makes gas, electricity and telecoms wholesale?

Paragraph 3.2 gives wholesale its normal meaning: business to business supplies intended for resale with no or negligible consumption. Supplies of gas or electricity under a supply licence or meter to premises for consumption are not covered, nor is electric vehicle charging (paragraph 3.5.4). Network, metering and balancing system charges contracted separately are excluded too.

For telecoms, the reverse charge covers wholesale transmission and carriage, such as airtime, voice interconnect, termination charges, VOIP calls and wholesale SMS. Broadband, leased lines, dark fibre, cloud hosting and premium rate services are listed as outside it (paragraph 3.7.2).

What must the seller and the buyer do?

Paragraph 7.6 requires the invoice to show all the usual VAT invoice details plus a reverse charge reference, such as “reverse charge: Customer to pay the VAT to HMRC”. The VAT amount should be stated but not included in the total VAT charged. The seller puts the net value in box 6 and no output tax in box 1. The buyer enters the output tax in box 1, reclaims it in box 4 subject to the normal rules including partial exemption, and puts the net value in box 7 but not box 6 (paragraphs 7.7 and 8.5).

The Reverse Charge Sales List for phones and chips was abolished from 1 July 2022 (paragraph 7.8), although the reverse charge itself continues.

Illustration only. A distributor sells 40 phones at £150 each to a VAT registered retailer on one invoice of £6,000. The reverse charge applies to the full £6,000: the retailer records £1,200 output tax in box 1 and £1,200 input tax in box 4, and the distributor shows £6,000 in box 6. A later invoice for 30 phones totalling £4,500 is below the threshold, so the distributor charges £900 VAT in the normal way.

Which supplies are always excluded, and what checks should sellers make?

Section 4 excludes supplies to customers who are neither registered nor liable to register, supplies for non business use, non wholesale supplies of gas, electricity and telecoms, margin scheme sales, cross border transactions and free gifts. Retailers should normally charge VAT unless they can verify a business customer (paragraph 9.2).

Paragraph 9.3.1 expects sellers to check the customer’s VAT number is genuine and belongs to it, run commercial credit checks, watch for disaggregation and question anything unusual, keeping evidence. Under paragraph 9.4, a seller that took enough steps but was deliberately misled is not liable; one that applied the reverse charge wrongly or checked too little must pay the output tax. Notice 726 adds joint and several liability for unpaid VAT in chains of phones, computers and other electronic equipment.

How does the reverse charge affect VAT schemes and registration?

• Reverse charge supplies are excluded from the Flat Rate Scheme and from the cash accounting scheme. Annual accounting is unaffected (paragraph 10.8).
• Second hand phones and chips sold under the margin scheme stay outside the reverse charge.
• Bad debt relief does not apply, because the customer accounts for the tax (paragraph 10.6).
• An unregistered business buying specified goods or services must count reverse charge purchases above £1,000 a month towards the VAT registration threshold, under section 55A(1) and paragraph 8.3.

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Related Accountapedia entries

• Filling in a VAT return: the nine boxes
• Reverse charge on services bought from abroad
• Construction reverse charge and the Flat Rate Scheme
• The limited cost trader rule in the Flat Rate Scheme
• End users in the construction reverse charge

Sources

• GOV.UK: The vat domestic reverse charge procedure notice 735
• legislation.gov.uk: Act 1994 c. 23, section 55A
• GOV.UK: Joint and several liability for unpaid vat notice 726
• GOV.UK: Vat rates

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.