There's a significant VAT change that will affect all UK businesses selling digital services such as apps, games, video on demand and music to private EU consumers.
What is changing?
Currently, the place of taxation is determined by your location as the supplier.
From 1 January 2015, the place of taxation for digital services will be determined by the location of your customers.
So, a business selling digital services to a private consumer based in Luxembourg will have to charge VAT at Luxembourg's standard rate of 15%, while the same digital service sold to a consumer based in Hungary will be subject to Hungary's standard VAT rate of 27%.
What is a digital service?
Digital service includes broadcasting, telecommunications and e-services such as:-
- Broadcasting: Includes the supply of television or radio programs to a schedule by the person that has editorial control of those programmes.
- Telecommunications: Includes the service of sending or receiving signals by wire, radio, optical or other systems - and includes fixed and mobile telephony, fax and connection to the internet.
- E-services: Includes video on demand, downloaded applications (including apps), music downloads, gaming, e-books/digital books, anti-virus software and on-line auctions.
￼￼A key aspect of this change is that there is no threshold. All businesses, including very small start-ups and non-VAT registered businesses, selling digital services direct to EU consumers will need to comply by 1 January 2015 - even if they sell just one app for 99p.
Good news for Google/Apple/Android sellers
There’s good news for businesses selling through Apple’s App Store and Google/Android Play due to the way the agreement is currently structured between the seller, Apple/Google and the end user.
Ultimately, Google/Apple will now be responsible for determining, charging, and remitting VAT for all digital content purchases for EU consumers through their app store.
Determining the location of your consumers
Businesses will need to review their checkout process to identify exactly where each consumer is located. HMRC have indicated that they would expect businesses to use information such as billing address or IP address to confirm and validate the consumer’s location.
UK MOSS - Registration now open
You can submit a single quarterly VAT return and payment to cover all EU B2C digital supplies using HMRC's VAT Mini One Stop Shop service (MOSS). HMRC will in turn remit the relevant amounts of VAT to the individual EU countries. You can register for MOSS now.
The deadline for the first MOSS return is 20 April for sales covering 1 January to 31 March. If you don’t make any digital supplies to any EU consumers in a quarter, you must submit a ‘nil return’.
MOSS is only available to VAT registered businesses. Start-ups and small businesses not currently registered for UK VAT are unable to benefit from MOSS. They instead have to register and file local VAT returns in each EU state they have a sale. Contact us urgently for advice.