What every digital services supplier needs to know about 2015 EU VAT changes

See VAT Moss update 03/02/2015

The New Year doesn’t just bring new opportunities. It also brings updates to legislation which could affect your business if you don’t keep up. If you supply digital services, you need to know about some key changes to EU VAT legislation coming in 2015. Right now, current VAT legislation dictates that for the supply of Broadcasting, Telecommunication & Electronic services* (BTE or, more simply, digital services) to non-business customers (B2C) in the EU, VAT is charged in the country where the supplier is established.

However, this is seen as giving an unfair trading advantage to companies supplying digital services operating in low VAT countries such as Luxembourg (15%) compared with those in high VAT countries such as Denmark (25%).  It has led to some major changes which could affect your business.

The change

From 1 January 2015:

  •   the supply is subject to VAT in the consumer’s country
  • the supplier will need to declare the VAT to the VAT authorities in the consumer’s country
  • the supply is ‘outside the scope’ of UK VAT.

Getting VAT MOSS-registered

While all this can all appear a little daunting, there is a relatively straightforward way to prepare for it:  a mini one stop shop (MOSS) registration. You can do this as long as you are VAT-registered in the UK.  The VAT MOSS scheme involves giving an electronic submission of one calendar quarterly return (including nil returns) and payment to HMRC.

To register, all you need to do is add VAT MOSS to your HMRC online account. You will find it under ‘Services you can use’.

You can check EU VAT rates here:

http://ec.europa.eu/taxation_customs/tic/public/vatRates/vatrates.html

You also need to know…

It’s important to be aware that the submission and payment deadline is only 20 days after the quarter end, rather than the standard UK one month and seven days.  Doing a VAT Moss registration means you will not need to complete an EC Sales List (ESL) declaration for these sales.  There is no direct debit option for MOSS registration.

Get to grips with customer location

Here’s how the location of the customer is defined, if the service is supplied:

  • through a telephone box, a telephone kiosk, a wi-fi hot spot, an internet café, a restaurant or a hotel lobby, the consumer location will be the place where the services are provided – for example, the member state where the phone box/kiosk etc is located
  • on board transport travelling between different countries in the EU (for example, by boat or train), the consumer location will be the place of departure for the consumer’s journey
  • through an individual consumer’s telephone landline, the consumer location will be the place where the landline is located
  • through a mobile phone, the consumer location will be the country code of the SIM card
  • through a decoder, the consumer location will be the postal address where the decoder is sent or installed.

Check these points:

  1. For any customer who has not supplied you with their VAT registration number, you must treat any supplies to them as B2C
  2. The vast majority of member states, including the UK, do not require VAT invoices to be issued for cross-border B2C supplies.

There are exemptions

As a rough rule of thumb, if the digital service being provided involves a human element (this includes things like webinars or exam marking), the change of rule will not apply and the service will continue to be VATable in the country of supply.  Get in touch with us if you would like more detailed advice on this issue.

But don’t overlook the potential business trap…

Unfortunately the VAT registration limit (currently £81,000 in the UK) only applies in the country where the business is established; for other countries it is zero for B2C supplies.

This means that any sales that were previously made B2C to EU customers for a company under the threshold will have had no VAT impact as the company would not be VAT-registered.

However, with the zero threshold applying, these sales would be caught under the new legislation and a MOSS return would need submitting.  To be able to do this, a company has to be VAT-registered which theoretically means all of the UK sales would need to have VAT declared on them.

Finally, a HMRC spokesperson has stated “Although a business needs to have a UK VAT registration number before it can register for the Mini One Stop Shop (MOSS) online service, provided it separates the cross-border part of its digital services business from the domestic part, it can voluntarily register for VAT on the cross-border business only” which suggests there is not a problem.

Guidance in this area is still evolving, so if you’re concerned that your company may fall into this potential trap, please do get in touch with us. We would be delighted to provide advice on this or any other aspect of business accounting to help your company thrive in 2015.

*Glossary

–          ‘Broadcasting services’ services consisting of audio and audio-visual content, such as radio or television programmes which are provided to the general public via communications networks by and under the editorial responsibility of a media service provider, for simultaneous listening or viewing, on the basis of a programme schedule.

 

–          ‘Electronic services’ services which are delivered over the Internet or an electronic network and the nature of which renders their supply essentially automated and involving minimal human intervention, and impossible to ensure in the absence of information technology. Videos on demand, downloaded applications (or ‘apps’), music downloads, gaming, e-books, anti-virus software and on-line auctions.

 

–          ‘Telecommunications services’  services relating to the transmission, emission or reception of signals, words, images and sounds or information of any nature by wire, radio, optical or other electromagnetic systems, including the related transfer or assignment of the right to use capacity for such transmission, emission or reception, with the inclusion of the provision of access to global information networks. Includes fixed and mobile telephony, fax and connection to the internet.

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