Last updated: 14 October 2026
How do VAT supply chain rules affect a business selling electronic goods?
If you trade in electronic goods such as phones, computer chips, games consoles, sat navs or audio equipment, HMRC can make you jointly and severally liable for VAT that someone else in your supply chain failed to pay, if you knew or should have known about the fraud. It can also refuse your right to reclaim input VAT under the “knowledge principle”. These rules were introduced to tackle missing trader (MTIC) fraud, and have been extended to more types of goods over time.
Your risks
| Rule | Effect |
| Joint and several liability | HMRC can demand another trader’s unpaid VAT from you |
| Knowledge principle | Your input VAT claim can be denied if you knew or should have known of fraud |
| Domestic reverse charge | For mobile phones and computer chips, the buyer accounts for VAT on business-to-business sales over £5,000 |
| Penalties | Up to 30% of input tax denied, and personal liability for officers in some cases |
Reasonable checks to carry out
- Verify suppliers’ VAT numbers using HMRC’s online checker
- Check Companies House records and trading history
- Be wary of deals that seem too good to be true, such as goods below market price
- Ask for references and bank details in the supplier’s name
- Visit premises where practical
- Keep records of all due diligence carried out
Domestic reverse charge for phones and chips
For sales of mobile phones and computer chips between VAT-registered businesses worth £5,000 or more (excluding VAT) in an invoice, the customer accounts for VAT. The seller issues an invoice showing reverse charge applies, and doesn’t charge VAT.
Example
GadgetHub Ltd, a wholesaler of games consoles and headphones, is offered 500 consoles at 15% below the usual trade price by a new supplier with no trading history. GadgetHub checks the VAT number, which is valid, but the supplier’s address is a mailbox and the director has links to dissolved companies. GadgetHub declines the deal and records its checks. If it had bought the goods, HMRC could have denied its input VAT if the supplier went missing without paying VAT.
Retailers selling to the public
Retail sales to consumers are not usually affected by the reverse charge, but you still need to check that your suppliers are genuine, as input VAT claims can be denied.
Online marketplaces
Overseas sellers using UK online marketplaces are subject to marketplace VAT rules, and marketplaces can be liable for VAT on certain sales.
Common mistakes
- Relying only on a valid VAT number as proof that a supplier is genuine
- Buying from new suppliers at unusually low prices without asking why
- Charging VAT on a sale that falls within the domestic reverse charge
- Not keeping notes of the checks made on each supplier
Frequently asked questions
Does the reverse charge apply to sat navs?
No, only to mobile phones and computer chips (and some other specified goods and services).
What if my supplier deregisters?
You may be unable to reclaim VAT on invoices issued after deregistration.
How long should I keep due diligence records?
At least 6 years.
Can HMRC penalise me if I didn’t know?
Only if you should have known from the circumstances.
Related: import VAT claimed by non-owners, calculating VAT for your business and VAT penalty notices.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with VAT supply chain checks. See our VAT accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
