Digital Services: Fundamental changes to the way VAT is charged to consumers from 1st January 2015
Updated: Feb 18
The changes to VAT accounting for suppliers of Digital Services (broadcasting, telecommunications and electronically supplied services) will come into effect on 1st January and will impact businesses making such supplies to non-taxable persons, essentially private individuals and organisations that are not VAT registered (‘consumers’) across the EU.
At the moment, UK VAT registered suppliers of digital services to consumers in other member states charge UK VAT at the standard rate (currently 20%) and record and pay this via their UK VAT return.
From 2015, all suppliers of digital services will have two options:
Register for VAT in the member state where your customer is located and account for and pay local VAT e.g. if your customer is in France, then you will charge the appropriate VAT rate; or
Use the Mini One Stop Shop (‘MOSS’) which allows businesses to submit a single quarterly return via HMRC for the local VAT due in other member states.
So what type of services are captured by the changes?
The following are examples of the services that will be affected but should not be viewed as a complete list as digital services are wide ranging and fast-changing:
Broadcasting – the supply of television and radio programmes;
Telecommunications – fixed and mobile telephony, fax and connection to the internet; and
Electronically supplied services – website/webpage hosting, remote maintenance of programs, online data warehousing, video on demand, downloaded applications (‘apps’), music downloads, gaming, e-books, anti-virus software and online auctions
Does this apply to me?
If you sell any of the above services to consumers in other EU member states then this will apply to you. It is possible that many suppliers will deliver digital services to consumers through an online portal, gateway or marketplace in which case it is possible that the platform operator will be seen as making the supply directly to the consumer and is, therefore, responsible for the related VAT implications. However, it is understood that other platforms, for example, Google Play act as an agent taking a commission on sales which means you would be responsible for accounting for VAT.
OK, so it’s just VAT compliance?
Things are never so simple! There is complexity from a VAT perspective – outside of the UK there are 27 member states with only five having the same 20% standard rate as the UK and other applicable rates ranging from 5.5% to 27%. However, the commercial position needs to be considered in terms of exchange rates and differing VAT rates which will lead to pricing and margin issues together with the necessary system changes which can take time to evaluate and implement.
This is a major change and any businesses not already aware and prepared should take steps immediately to establish the impact these changes will have and put in place an action plan to ensure VAT compliance and business stability and competitiveness.
If anybody has any questions on the matters discussed above please contact Andrew Norris of Centurion VAT Specialists by email email@example.com or on 07950 694711.
Thanks to Centurion VAT for this post!