VAT changes to Digital Sales

Recent years have seen the development and growth of the digital marketplace.  Unfortunately, the tax rules haven’t kept up and we are now left with complicated rules concerning world trade within telecommunications, broadcasting and e-services. These are now being addressed by the Vatman.  This is a welcome move, and might actually make the tax treatment of such transactions simpler in the future.  There are two planned changed, taking effect on 1 January 2015.

The first change affects the place of supply rules for transactions within Europe, covering supplies by a business in one EU member state to a private consumer located in another.  The place of supply will be determined by the country the consumer is located; at the moment the country the supplier is based determines the place of supply and the VAT rate applicable.  A practical example of this might be the purchase of digital music by a UK individual from a supplier who is located in say Luxembourg.  At the moment the VAT rate for Luxembourg is being applied to that transaction, after January 2015 UK VAT would apply as the consumer is based there.

The second change will be the introduction of the VAT Mini One Stop Shop (MOSS).  Outside MOSS, a business needs to register for VAT (and submit returns) in each of the EU countries with which it trades, each at the VAT rate applicable for that country.  Within MOSS, UK companies have the option of registering within the UK to account for VAT due for all relevant transactions on one return, albeit made up potentially of 28 different VAT rates.

HMRC have confirmed that where a business is not VAT Registered within the UK and makes sales to private individuals in other member states it can register for VAT solely for paying EU VAT.  The business will not need to account for VAT on UK sales.  However, care needs to be taken monitoring UK turnover to identify if the business exceeds the UK VAT threshold.

Two things need to be considered within MOSS; transactions between two EU member states, and transitions with a non-EU member state.  MOSS schemes for both are optional, but once MOSS is chosen, it must be applied to all EU member states, and you are not able to pick and choose.   The scheme is only used to declare output VAT, with input VAT recovered via the VAT refund procedure.

Companies can register for MOSS in October 2014, although the changed don’t actually become effective until 1 January 2015.