In a few months time, two changes in rules will affect all UK VAT-registered business who supply digital services within the EU.
The first change relates to telecommunications, broadcasting, or e-services.
If your business provides telecommunications, broadcasting, or e-services,Â is located in one EU member state, and supplies a consumer in a different EU member state, your business will be taxed in the consumerâ€™s state.
Up until the end of 2014, the tax has been applied in the supplierâ€™s state. But this change ensures that the tax is properly applied where the product has been purchased.
This ruling affects the following:
- Fixed and mobile telephone services
- Internet services
- Radio and television programmes
- Live broadcasts over the internet
- Music downloads
- Anti-virus software
- â€¦and more.
Essentially, if itâ€™s a service or product provided to a single consumer, it is affected by this ruling.Â (Note that this does not apply to B2B services, just B2C services.)
The HMRC provides a few guidelines to help business owners identify the place of taxation. However, if the supplier believes that those guidelines are inaccurate in regards to a specific customer, the supplier can gather admissible evidence, as defined by the HMRC, to support that decision.
This change is significant, and requires suppliers to keep track of the VAT in each country, and keep detailed records that they didnâ€™t have to previously.Â Therefore, digital services business owners would be wise to begin making preparations as soon as possible.
The second change is the introduction of the VAT Mini One Stop Shop (MOSS).
MOSS becomes available in October, and should be the easiest way for most suppliers of digital services. MOSS will enable UK-based businesses to submit a single return to HMRC that accounts for the VAT due at appropriate rates of taxes in each consumer state. This will significantly reduce the additional administrative issues imposed by the new VAT rules.
In a nutshell, you will be able to supply one quarterly return, and on that return you will indicate which states had consumers that purchased your product or service.Â HMRC will submit the appropriate information and related payment to each tax authority on your behalf. There are registration options for union and non-union suppliers.
As mentioned, these changes are quite significant, and are rather complex also. Please talk to us if you are a business owner working in the digital services, and we can help you sort the best steps for you and your business.