Changes to European Union (EU) VAT rules for business-to-consumer (B2C) supplies of digital services came into effect in 2015.
At the turn of the New Year the place of supply to business to consumer (B2C) telecommunications, e-services and broadcasting services was changed to the country where the customer is located.
The changes will affect all businesses that provide the below digital services to consumers in other EU countries; regardless of whether they are registered for UK VAT. This is because there are no VAT registration limits for B2C digital service supplies outside of the UK.
Subsequently any business supplying digital services to consumers in other EU countries must charge VAT on the supply in each particular nation and register for VAT in each Member State.
If you are a business supplying B2C digital services to EU consumers and are not registered for VAT because you are under the VAT threshold (currently £81,000), you need to take action now as you will need to register for VAT.
What is the definition of digital services?
Includes the services of sending or receiving signals by wire, radio, optical or other systems. It includes fixed and mobile telephony, fax and connection to the internet.
Includes the supply of television or radio programmes to a schedule by the person that has editorial control of those programmes.
Includes video on-demand, downloaded applications, music downloads, gaming, e-books, anti-virus software and on-line auctions.
Who is making the supply?
If you provide digital services to consumers via an online portal, gateway or marketplace then it’s important to determine whether you’re making the supply to the customer or to the platform operator.
In the event the platform operators set the general terms and conditions, authorise payment or delivery, or doesn’t clearly state the name of the supplier on the receipt or invoice issued to the consumer, they’ll be seen as making the B2C supply even if they’re contractually only a third-party agent.
If you’re in any doubt, get in contact with them ASAP and find out if they are complying with the new rules.
Who does this new ruling not affect?
If you supply digital services to businesses only (including those who are self-employed) then these changes do not affect you.
However, you must prove that your customer is a business by supplying their VAT number. If they do not have one or do not provide it, then you must treat them as a B2C supply and act in accordance with the new regulations.
Those who make domestic sales only (in the UK) will not be affected by the new ruling.
If you’re still not entirely sure whether you’re affected or not don’t hesitate to
contact us to discuss your situation.
VAT Mini One Stop Shop (VAT MOSS)
To combat the issue of having to register for VAT in every EU Member State where you supply digital services, you may wish to use HM Revenue and Customs’ (HMRC) VAT Mini One Stop Shop (VAT MOSS) online service.
If you are an EU business, you can register and use the ‘Union’ VAT MOSS online service in the Member State where you have your business establishment i.e. your place of business or head office.
You will still be required to register for VAT in the UK to use the VAT MOSS service and if you’re not already VAT registered, this could result in you having to file ‘nil returns’. However, by using the VAT MOSS online service you can submit a single calendar quarterly VAT MOSS return and payment covering all your EU digital service supplies.
So if you register for the VAT MOSS online service in the UK, you will be able to account for the VAT due on your B2C digital service sales in any other Member States, by submitting a single VAT MOSS return and any related payment to HMRC.
VAT MOSS returns: how do I comply?
If you’re affected by the new rulings but have never been VAT registered before, we can support you with the entire transition; and even take care of your bookkeeping and reporting requirements going forward to allow you to continue to serve digital services to your much-valued customers in Member States.
If you are eligible and wish to register for VAT MOSS, you must use the scheme to account for VAT on all B2C digital supplies to consumers in Member States where you are not established.
Note: If you are a UK business affected by the new rules, you do not need to account for VAT on your UK sales provided they are under the VAT registration threshold; it only counts sales to other EU Member States.
Furthermore, you’ll be required to raise and issue VAT invoices in accordance with the published requirements of each Member State where your consumer is located.
The vast majority of Member States, including the UK, do not require VAT invoices to be issued for cross-border B2C supplies.
HMRC will submit an electronic copy of the appropriate part of your VAT MOSS return and the related VAT payment to each relevant Member State’s tax authority on your behalf.
Member States can’t insist on a business to issue a full invoice for cross-border B2C supplies, but they can insist on a business issuing simplified invoices - you’ll need to check the requirements in the Member States where your consumers are located, or get us to do the research and leg-work for you!
Locate your customers
Under the new rules, locating your customers is very important. Most of the time, it should be fairly straightforward to establish their location. But where it is unclear, you may need to collect other information from your customers which could mean your website needs adaptions.
Register as data controller
As you’ll be required to keep customers records electronically you must register as a data controller with the Information Commissioner’s Office (ICO) if you are not already registered. The current cost is £35 per year.
How we can help
If you’re struggling to get to grips with the new rules, your local TaxAssist Accountant will be happy to discuss a solution with you. Simply arrange your free initial consultation and let us help you meet your VAT obligations.
By Jo Nockels
Last updated January 2015
Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.