Mobile Phone Usage Outside the EU to Become More Expensive

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As the chancellor announced in March 2017, as of 1 August 2017, UK VAT will be added to roaming phone charges for calls made outside the European Union (including the Australia, China, India, and the UAE and USA, etc.) on UK-registered mobile devices. As a result, mobile phone roaming bills will rise by 20%.

Roaming charges in the EU were banned in June 2017. When the UK leaves the EU at some time after 2019, EU rules on roaming charges will no longer apply to the UK; after then the 20% VAT rule will probably apply on roaming charges inside the EU too.

Why charge VAT on roaming charges outside the EU?

Previously UK VAT was not charged on mobile phone use outside the EU because of the “use and enjoyment” rule. This is because mobile phone use inside the EU is treated as taking place where the customer lives, but use outside the EU is treated as taking place where the service is consumed. A call made by an individual who lives in the UK on their mobile while in the USA, for example, wasn’t subject to UK VAT before 1 August 2017 as the supply was treated as taking place (being used and enjoyed) in the USA.

Since 1 August 2017, the UK has fallen into line with the agreed international approach to tax mobile phone use in the country where the user of the phone lives. This means that in order to avoid double taxation the “use and enjoyment” rule has been scrapped. It also means that until the UK leaves the EU the EU roaming-charge ban applies to UK consumers, but only when inside the EU, not when calling the EU from the UK.

Why the change?

This change was deemed necessary because apparently there’s evidence to suggest that some businesses were exploiting the “use and enjoyment” rule to argue that tax isn’t due on certain supplies of mobile services within the UK.

So what does the change mean?

It’s thought that adding VAT to bills for UK consumers using mobile devices outside the EU will raise 65 million a year for the UK Treasury. It also has the potential to inflate mobile phone bills for UK consumers too. For example, say you’re in China and make a call on your mobile phone to the UK, in China it costs £2/min to make a call; £1.25/min to receive a call; and 35p to send a text and £6/MB to use data.

Add 20% VAT to those sorts of charges and you can see how your mobile phone bill could escalate.

If you’re making a business call and you’re VAT registered you can reclaim the VAT providing the phone is in the business name and that bills for call charges are made out in the company name. You should remember to apportion any non-business calls. If you have a mobile phone bundle then my advice would be to use it solely for business and have another phone for personal use.

How can you avoid huge mobile phone charges?

To avoid high charges, check with your network before you travel abroad to a non-EU country to see if there are any bundles or discounts, special roaming deals, or travel add-ons on offer while using your phone abroad.

Read texts from your network when you arrive at a new destination as these generally inform you what you’re going to be charged for to make calls, texts and download data.

Use free wifi to make calls using apps like Skype, WhatsApp and Viber, just make sure that the network’s secure.

Turn off your phone, or at least make sure you turn off data roaming before you leave the UK as some apps work in the background and can attract charges even before you exit the airport at your destination.

When you make your next phone purchase buy an unlocked phone, then buy a pay-as-you-go SIM at your destination. The 20% VAT only applies to UK SIMs, so you won’t be charged the extra on a local SIM. If it’s for business use, then make sure you buy it through the business account and in the business name if you want to reclaim the expense.

Check the roaming cap, the EU roaming cap covers the EU member states, plus Iceland, Liechtenstein and Norway, but some European countries, e.g. Turkey and Egypt, aren’t in the EU.

About the Author: Sumit Agarwal
A specialist accountant and tax adviser for freelancers, contractors and small businesses since 2005, He is an expert in business growth and development strategies. A renowned tax expert for owner managed businesses and contractors, He won the British Business Forum’s Young Entrepreneur Award in September 2012, presented at the House of Commons by MP Vrinder Sharma.