By charging VAT on telecommunication services outside the EU the Treasury has estimated to make £45m in 2017/2018 and £65m per year going forward.

Currently, VAT is charged when UK consumers use their mobile phones within the EU but because of the ‘use and enjoyment’ rule, VAT is not charged on roaming services outside the EU.

The UK adopted this approach before the EU adopted the existing place of supply rules for telecommunication services. At that time the place of supply rule was that tax was due where the supplier was located. Without the ‘use and enjoyment’ rules, companies could have located outside the EU in a jurisdiction which did not apply VAT to exported services. This would potentially have resulted in people living in the UK not being charged VAT on their mobile phone use in the UK.

The international approach is to tax mobile phone use in the country where the user of the phone lives. This means that a ‘use and enjoyment’ rule is no longer necessary and may result in double taxation.

The ‘use and enjoyment’ rule is being removed as it is being exploited by businesses to argue that tax is not due on certain supplies of mobile telecommunication services within the UK.

VAT: telecommunication services used outside the EU – use and enjoyment rule removed is available here.