From 1 January 2015, a digital service sold to someone in another EU country, who is not a business (i.e. an individual, Government body or perhaps a charity), is liable for VAT in the country where that customer belongs. This means the supplier needs to:
- price its product to take account of the applicable EU country'(ies') rate(s) of VAT so that profit is not lost; and
- charge VAT on the invoice issued to its overseas customer at the rate that applies in the customer's country, and then pay that VAT to the tax authority of that country.
"Digital services" includes a multitude of products such as:
- music downloads;
- video on demand;
- electronic books;
- online games;
- anti-virus services;
- software purchased by download;
- charges by online auction sites;
- sales of data or images online; and
- automated learning or exams.
As there are 28 EU countries it would be an administrative nightmare to complete a quarterly VAT return in every country in which the supplier has customers. Hence the need for an online portal (called a Mini One Stop Shop or “MOSS”) to do all the VAT accounting and payment in one go.
The VAT MOSS portal is now open for businesses to register (see https://www.gov.uk/guidance/register-and-use-the-vat-mini-one-stop-shop), but it's not going to solve all the administrative nightmares.
- suppliers need to know the VAT rates that apply to all of their products in all the countries they sell to;
- suppliers’ VAT invoices to customers in other countries must comply with the local regulations - which are NOT the same across the EU;
- VAT-MOSS returns must be made for calendar quarters irrespective of the periods for which the supplier draws up its UK VAT return;
- VAT due under MOSS must be paid electronically by the 20th of the month following the end of the quarter, but payment can't be made by direct debit;
- the tax authorities for every EU country in which downloads are sold can inspect the UK supplier’s sales records, which must be retained for 10 years.
UK Suppliers must also be VAT registered in the UK before they can use the MOSS system.
Should you consider that you will be affected by these revised rules, please contact one of our tax partners, Clare Munro or Phil Moss or our VAT consultant, Andrew Rimmer. We will be delighted to help and guide you through the changes.
Click here for more information on our VAT services.