What is it?
A new EU ruling which will come into force on 1 January 2015, requiring any business selling digital services to EU consumers to charge VAT based on where the consumer is based (instead of previously where the supplier was based).
This ruling is changing all the time – the latest HMRC update is dated 29 December, so keep checking back for updates. So, lets see what it’s all about:
Who is affected?
Any business that sells digital services to EU consumers (not businesses, but private consumers, including charities and public bodies)
What is a digital service?
HMRC has a full list of what is covered, but the 3 main categories are:
- Radio and television broadcasting services
- Telecommunications services
- Electronically supplied services (more on this here)
What are electronically supplied services?
So this is the grey area, but includes e-services which are automatically delivered over the internet, or an electronic network, where there is minimal or no human intervention. In practice, this can be either:
- where the sale of the digital content is entirely automatic eg, a consumer clicks the ‘Buy Now’ button on a website and either:
- the content downloads onto the consumer’s device
- the consumer receives an automated e-mail containing the content
- where the sale of the digital content is essentially automatic, and the small amount of manual process involved doesn’t change the nature of the supply from an e-service
All ‘e-services’ that are ‘electronically supplied’ in the ways outlined above are ‘digital services’ and are covered by the rule changes.
HMRC have produced a handy table which shows examples electronically supplied services, and whether they are covered by the rules or not.
What Sales Are Not Covered By The New Rules?
If you are using the internet just to communicate with your customers, the rule changes to not apply to you. Here is more information from HMRC on sales not affected.
So What Do You Need to Do?
So the easy bit might be determining whether the rules apply to you. The difficult bit is how to administer the new rules, and how to charge VAT to your consumers in the EC.
1. Determine whether your customer is in business, or is a consumer:
- If they have a VAT number (VRN) then you can assume they are in business (keep a record of their VAT number).
- BUT they may be in business, but not registered for VAT – in that case, take another piece of evidence as proof – eg a link to their business website, a copy of their business insurance etc (keep this safe).
- More information can be found here from HMRC.
2. If they are a consumer – you must determine the place of supply:
- This is normally where the consumer lives.
- You can make certain presumptions based on where they are ordering from (eg IP address, phone number etc)
- If you cannot make these presumptions, then you need 2 pieces of proof of the place of supply.
- This can be their address, IP address, bank details etc.
**If you use a payment provider, in most cases, they should be doing this for you. Check this Facebook thread for responses from many third party platforms.
3. Charging the Correct Amount of VAT
OK – the tricky bit! Now that you know where your customer is based, you now have to charge the correct rate of VAT, and declare this to the right EU countries.
If you are selling digital services, you will have a website, and some kind of ecommerce solution to make your automated sales. My very serious advice to you would be to speak to your ecommerce provider and get this VAT bit automated too.
We work really closely with Jon Leighton of iResources who is an ecommerce expert. We are currently trialling Taxamo together, which should do all of your VAT calculating for you, including identifying where your consumer’s place of supply is. It will also integrate with your current ecommerce platform and hopefully into your accounting system (watch this space).
If you use an online accounting solution like Xero, we can set up EU VAT rates for the EU countries you need to charge VAT to.
4. Declaring the VAT
This is where the VAT MOSS comes in or Mini One Stop Shop, set up by HMRC. Instead of registering for VAT in every single EU member state, you can sign up once via the MOSS, and make one quarterly declaration.
So that’s it, but I think you will have some questions:
1. What is the registration threshold for EU VAT.
There is no threshold, if you only sell £1 of digital services you still have to sign up.
2. If I register for VAT MOSS do I have to add VAT to all of my UK sales
No – you will only have to declare VAT on EU digital sales, not UK sales.
3. What if I haven’t signed up by 1 January 2015?
Don’t panic – HMRC have now decided on a soft launch, meaning that you just have to register by the 10th day of the month following your first digital services supply.
4. Where can I find out more?
There is lots of help out there – ask us – but also keep an eye on these groups and websites:
Digital VAT 2015 Facebook page
HMRC Mini One Stop Shop (VATMOSS)
You can also email HMRC directly if you have specific questions about your need to register: Vat2015.contact@hmrc.gsi.gov.uk
Phew – this is a heavy topic – apologies for the long and involved blog. Please get in touch if you would like more specific information.
Sharon Pocock FCCA
www.kinderpocock.co.uk
