By Richard Hopes, Partner, Alliotts
There was an outcry from small business owners when changes were announced to EU VAT which affected suppliers of digital services to consumers back in October 2014. Despite, this, those changes took effect from January 1st 2015 and are now in force.
I think it is important to clarify at the outset that the European Union VAT 'place of supply of services' rules affect business to consumer (B2C) supplies of broadcasting, telecommunications and e-services (‘digital services’). They do not apply to suppliers of these service supplying on a business to business basis.
These are significant changes and in order to work out the country in which VAT must be paid, if you are a supplier of digital services, you may need to keep additional information that was not required before. Here are some tips on what you need to start doing now if you are to stay within the law.
1 Up until January 1st 2015 the place of taxation for intra EU digital supplies was determined by the location of the supplier of the services. However, that has now changed and the place of taxation is now decided by the location of the consumer, and digital supplies will be taxed at the VAT rate applicable in the consumer’s EU Member State.
For example, as from 1st January 2015 a UK supplier of digital services to a French consumer would have to charge French TVA and not UK VAT.
2. You do not have to be VAT registered for these changes to affect your business. This is because there are no registration limits for digital service supplies made to consumers outside the UK. Any business supplying digital services to a consumer in another EU Member state therefore has to charge VAT on the supply in that EU Member State and register for VAT in that EU Member State.
3. There is an option that makes the whole complicated process a little bit easier. In order to save businesses having to register for VAT in every EU Member State where they supply digital services, they can use HMRC’s VAT Mini One Stop Shop online service (VAT MOSS) which means that a company only needs to submit a single calendar quarterly VAT MOSS return and payment covering all their EU digital service supplies. So if you register for the VAT MOSS online service in the UK, you will, with effect from 1 January 2015, be able to submit a single VAT MOSS return and any related payment to HM Revenue & Customs (HMRC). HMRC will send an electronic copy of the appropriate part of your VAT MOSS return, and the related VAT payment, to each relevant EU Member State’s tax authority on your behalf. The VAT rate used will be that of each EU Member State of consumption at the time the service was supplied.
Don’t get caught out – talk to a financial expert or your accountant if you think you may be affected.