VAT changes to UK businesses selling 'digital services' to EU countries

From 1 January 2015, UK businesses selling ‘digital services’ to consumers in other EU countries will be required to charge VAT according to where the customer is based.

By Cassons Chartered Accountants.

This means the appropriate VAT rate will need to be determined at the point of sale so the correct amount can be charged.

For the purposes of the regulations, digital services include ‘broadcasting, telecommunications and e-services’. So services such as music and video downloads, web-hosting, and the supply of software are subject to the new rules.

With no threshold for registration, any supplies within the EU are subject to EU VAT at the appropriate rate, even if the business is not currently registered in the UK.

So who is classed as a consumer? Sales to non-VAT registered businesses are not classed as supplies to consumers, although the current official guidance doesn’t make this clear. There is however a burden of proof to show that the customer is actually a business. The rules for supplies of services to businesses remain unchanged.

In order to avoid registering for VAT in every EU country, businesses are now able to register for a new ‘one stop shop’ known as MOSS, which acts as a Europe-wide VAT return for supplies made outside of the member-state in which the business is based.

UK based businesses can register for the MOSS with HMRC now, and this should be done in time for 1 January. Returns are submitted online every quarter, with the first return due for submission by 20th April 2015. The VAT MOSS liability will also be due for payment by this date. Professional advice is recommended for UK businesses currently selling ‘digital services’ to consumers in other EU countries.