There are some new and potentially quite nasty VAT rules coming in on 1 January 2015 with regards to the VAT treatment on the sale of digital services to non-business customers in the EC
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 "in-person" training though), downloaded applications (or ‘apps’), music downloads, gaming, e-books, anti-virus software and online auctions
To be caught by this new legislation the supply first of all has to be to an EC country (excluding UK sales for which there is no change), so if it is to a country outside of the EC it is not an issue. 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.
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:
1 - The VAT is now flipped around so it is charged based on where the customers country is not where the suppliers country is
2 - 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)
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 affects but as that is even more complicated we will ignore that option for the purpose of this article.
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.
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