To update our article below, HMRC have now confirmed that UK businesses that are under the UK VAT registration threshold and will be registering for the MOSS just to report their EC relevant sales will not have to charge VAT on their UK sales as long as they remain under the VAT registration threshold.

We would suggest you read over HMRC’s Q&A section below to get up to speed with the developments of this fast moving issue:

HMRC EU VAT Changes : Q&A

 

Original Article

Business is booming in the digital services sector, with films, games, e-books and apps being offered to download across the world. However, if your business provides such digital services to consumers (as opposed to businesses) in the EC, you will face new rules coming into effect from 1st January 2015.

iphone-410311_1280

HMRC define digital services broadly as :

  • broadcasting – the supply of television or radio programs.
  • telecommunications – fixed and mobile telephony, fax and connection to the internet – this includes providing web-hosting services to clients.
  • e-services – video on demand, video tutorials (not online personal / human training though), downloaded applications (or ‘apps’), music downloads, gaming, e-books, anti-virus software and online auctions.

shutterstock_147471086To be caught by this new legislation the supply first of all has to be to another EC country (UK sales are un-affected), so if it is to a country outside of the EC it is not an issue (you still need to think about the old VAT rules). Secondly the supply must be to a person rather than a business. If you are selling a digital service / product to a business in the EC, as long as you have proof that the client is in business by having their EC VAT registration number then the new legislation will not catch you.

You can verify a clients VAT number at the link below:

http://ec.europa.eu/taxation_customs/vies/

If your client does not provide you with a VAT number it will be difficult to prove they are a business any other way – see HMRC’s guidance on this below:

“If you supply digital services and your customer doesn’t provide you with a VAT registration number (VRN) then you should treat the supply as B2C. You, as the supplier, may choose to accept alternative evidence of business status although this may not be acceptable for all member states. If a member state does not accept alternative evidence then you will be responsible for VAT in that country if a VRN has not been provided.

It’s your decision to accept alternative evidence. Your customer can’t require you to treat a supply as B2B if they have not provided a valid VRN.”

If you are selling your product through a third party and the third party is a business then you should be ok as your sale will usually be a business to business sale, but you should check with your re-seller / distributor to ensure that the way the agreement is setup with them is in such a way that you are supplying the products to them, not to the end consumer. An example of this is if you are selling apps through the Apple app store. In that circumstance you are actually selling your App to Apple and then they sell it on to the consumer, so you are not caught by the new rules. If, however, you were selling your app directly to an EC consumer through your own website you would be caught by the new rules.

The previous legislation would have meant that if you were VAT registered you would charge standard rate VAT on these sales and if you were not VAT registered as you were below the VAT registration threshold then you didn’t need to worry about it.

Under the new rules there are two issues:

  • The VAT is now flipped around so it is charged based on where the customers country is not where the suppliers country is, so you will have lots of different VAT rates to consider.
  • There is no VAT registration threshold for this so even if your overall sales are below the threshold you would have to register for VAT in order to report these sales through the new HMRC reporting portal (discussed below). This is the issue that is causing a lot of fuss as it means people that have low amounts of revenue that used to be well below the UK VAT threshold (£81,000 for 14-15) will now have to register for VAT just so they can report their EC sales through the new HMRC online portal.

If you are caught by the new legislation then it will cause some administrative issues:

  • you will need to be able to track your sales by each country
  • you will then need to factor in the VAT of the EC country where the customer resides when assessing your profit margin on your products
  • these figures will then need reporting through a new HMRC VAT portal

HMRC has developed a new online system to manage the reporting of the different VAT amounts for the the EC countries. This new system is called the “VAT MOSS” (VAT Mini One Stop Shop).

There is an alternative option of registering for VAT in each country that you are affected by but as that is even more complicated we will ignore that option for the purpose of this article.

Here are some examples of what is and isn’t caught by the new legislation which we will update as new examples come up. When we say something is not caught by the new rules, you will still need to consider the old rules for VAT treatment purposes.

  • Selling PDF e-books through your own website to EC consumers that don’t provide you with their EC VAT number. Yes – this is caught by the new rules. If you were selling through a re-seller and they were a business then you wouldn’t be caught by the new rules.
  • Selling Web Hosting services to EC businesses – as long as you have their EC VAT number then this is a “business to business” sale so isn’t caught. The EC VAT number is how you prove they’re a business
  • Selling Apps through Apple app store – not caught because you are selling “business to business” to Apple who are then re-selling to the end consumer.
  • Providing Webinar training to EC consumers without VAT numbers – if they are “automated” webinars that don’t require human input, or little human input, then they will be caught by the new rules.  If you provide human training i.e. a live webinar then this will not be caught by the new rules.

If you believe you have any services / products that will be caught by this legislation please do get in touch with us so we can discuss your options.