From 1 January 2015 onwards, the way VAT has to be applied when specific ‘digital services’ are supplied to EU customers is changing. This only impacts services provided by a business to consumers (B2C), not services provided to other businesses (B2B).
The changes mean ‘the place of supply’ will be where the consumer is based, not where the business is established. This means that UK businesses will have to charge and account for VAT, on digital services, according to the rules and rates of the EU country where the consumer is based.
Digital supplies include the following –
- Broadcasting: supplying TV or radio programs
- Telecommunications: sending or receiving signals by wire, optical or other systems. Includes fixed and mobile telephony, fax and connection to internet
- E-Services: includes video-on-demand, downloaded apps, music downloads, e-books, anti-virus software and on-line auctions
Please note, the changes do not apply to, or affect, straightforward e-commerce in general, i.e. purchases of physical goods that are made online and then physically delivered to a consumer in another country. The changes only apply to services that are delivered digitally.
Does this affect my business?
If the above type of supplies relate to services you provide and you have customers in other EU countries, you must keep a record of their VAT-equivalent number, in order for the supply to be classed as a business-to-business transaction and therefore to not be affected by these rules. However, if you are unable to obtain the VAT Registration Number from the EU customer, or they are not VAT registered, then the transaction will be automatically classed as business-to-consumer and these rules will apply.
Even if you are not UK VAT registered, if you provide such services, then these new rules will apply and you will need to account for VAT at the rate relevant in the EU countries that you are providing services to.
Impact on the your UK invoices
For a supply that is caught by the new rules, when you raise your customer invoice to the EU member state consumer, you must apply the VAT rate applicable in that EU country. For example, if you sell an e-book to a consumer in Spain, you will have to add Spanish VAT to the sales invoice and pay this to the VAT authority in Spain.
But I sell to lots of different EU Countries?
For UK VAT registered businesses, HMRC have introduced MOSS – the Mini One Stop Shop. This will save you having to register for and pay VAT in each EU Member State.
With MOSS, each quarterly return will summarise all your B2C sales of these services to other EU Member States and one payment for the VAT is made to HMRC, which will collect the VAT on behalf of the other EU Member States. However, you will need to charge the local rate of VAT on your invoices for these services and record this as such on your VAT return.
Registration to use MOSS can be applied for now through HMRC’s website, or let your accountant know and they will be able to register as an agent for you. MOSS is a voluntary scheme so you can opt to register in each EU Member State if you would prefer but this is likely to be very time consuming. This also means though, HMRC can remove you from MOSS if you fail to meet the relevant requirements.
Originally, you were not able to use MOSS unless you were registered for UK VAT, even if your sales were too low to necessitate this. Following pressure from business groups and the media, HMRC has subsequently agreed that businesses can in fact register for MOSS without having to charge VAT on their UK sales, where they are below the UK VAT threshold, currently £81,000. So, you can now access the help provided by the MOSS system whilst not having to register for and charge UK VAT.
If you have any questions on this, please contact your accountant who will be able to help.