VAT on digital services

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VAT obligation on digital services

If you supply broadcasting, telecommunications or e-services to consumers in the EU, you must abide by new VAT laws which came into effect earlier this year. Here’s a five-point plan to help you… 

The elimination of cross-border tax avoidance and the creation of a level playing field between different-sized suppliers was the goal in mind when, in 2008, an EU agreement was reached to change VAT rules for UK providers of digital services to EU customers. Seven years later, on 1 January this year, those new rules came into place. So who do they affect, and how? And what’s the best way to comply with them?

1 For the purposes of the new laws, digital services encompass broadcasting (television or radio programmes), telecommunications (both fixed and mobile), internet connection, e-services, online gaming (including gambling), video on demand, apps, music downloads, gaming, e-books, online magazines, software and software updates/maintenance and online auctions. Using the internet to advertise or sell services – the sale of tickets to events, for example – does not count as a digital service.

2 Companies which provide such services must declare and account for VAT in the countries where their customers are based – or ‘place of supply’. If you supply digital services to consumers in other EU countries, you now register for, charge and pay VAT in the countries in question.

3 There are two ways in which you can comply with your reporting requirements. You either need to contact the relevant tax authorities in each country, or you can use Revenue & Customs’ VAT Mini One-Stop Shop (VAT MOSS). The latter option is simpler, as you only need to submit a single quarterly VAT return and payment for your EU sales, which Revenue & Customs then forwards to the relevant countries.

4 Before you can use the VAT MOSS service, you must be registered for VAT in the UK, even if your income is below the VAT registration threshold (£81,000 per year), by the tenth day of the month following your first digital services supply. Don’t worry: this doesn’t mean you’ll be paying VAT on sales to your UK customers.
Any VAT refund claims you do make should be limited to amounts that can be directly attributed to your EU sales.

5 If you have any concerns or quandaries about whether the laws affect you and how you can comply with them with minimum effort, the Directors’ Tax Line offers tailored tax advice to IoD members on topics such as national insurance contributions, PAYE, VAT, corporation tax, inheritance tax, income tax, stamp duty and trusts.

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About author

Nick Scott

Nick Scott

A former editor-in-chief of The Rake and deputy editor of the Australian edition of GQ, Nick has had features published in titles including Esquire, The Guardian, Observer Sport Monthly and Rolling Stone Australia and is a contributing editor to Director magazine. He has interviewed celebrities including Hugh Jackman, Daniel Craig and Elle Macpherson, as well as business people including Sir Richard Branson, Charles Middleton and Nick Giles and Michael Hayman MBE.

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