VAT is not for me - you think not? Beware - new rules on digital sales:

Author - Cecile Hunt

Cecile Hunt MAAT

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VAT is not for me - you think not?  Beware - new rules on digital sales:

Do you deal in digital products and services, such pdf files, downloadable software or tutorials, to private individuals and non-business? 

Are you under the impression that VAT does not affect you because you  don't create enough turnover to register for VAT in the UK? 

Or - as you are under the, very high, VAT threshold in the UK, you have decided not to voluntarily go for VAT registration?

Why bother reading this if you are under the threshold?  Because, since 1st January  2015, if you make sales of digital services to consumers in the EU you will either have to register, individually, with the 28 member states in the EU with the possibility of having to make 28 individual VAT returns or the alternative is to register with HM Revenue and Customs (HMRC) and join the mini-one stop shop (MOSS) scheme.

Major changes have taken place across the EU on digital sales to consumers in EU states. 

It is now your responsibility to account for VAT to the tax authority in the EU state the 'place of supply' took place; at the VAT rate of the place where your consumer is based, has their permanent address, or usually resides.

To determine whether a VAT charge will apply you need to:

• Determine whether it is a digital service (because if it isn’t, the general place of supply of services rules will apply).
• Determine the status of your customer ie, business or non-business.
• Determine the place of supply (ie, the member state).
• Determine whether the supply must be taxed at the member state’s standard or reduced VAT rate, or whether it is eligible for any VAT exemptions (eg, most member states exempt betting and gaming).

 
Question is - do you supply the following electronically?

• images or text, such as photos, screensavers, e-books and other digitised documents e.g. pdf files, knitting & craft patterns
• music, films and games, including games of chance and gambling games, and of programmes on demand
• on-line magazines
• website supply or web hosting services
• distance maintenance of programmes and equipment
• supplies of software and software updates
• advertising space on a website
• Downloads of training course videos
•  

If the answer is yes you will have to register for VAT with HMRC - no if or buts apply.  The only way out is to stop supplying EU states.  To comply with the new rules, and carry on supplying digital services, read on - the following gives an overview only and is not a full explanation of what the new rules cover .

 To comply HMRC states that: "To use the Union VAT MOSS scheme you need to be registered for UK VAT".

If you are already VAT registered in the UK - login to HMRC’s online service with the User ID and password that you use to access the VAT Online service to register for the VAT MOSS scheme

If you do not want to have to register for VAT in other EU member states, you must register for VAT MOSS by the 10th day of the month following your first digital services supply. So, for example, if you make supplies on 8 January 2015 and want to use the VAT MOSS scheme to declare sales in the tax periods ending 31 March 2015, you must register by 10 February 2015. Your scheme registration will then be back-dated to the date of the first cross-border digital services sale on 8 January.

 If you sell business to business you may be able to avoid joining MOSS but only if the person/business you are selling to can prove they are a business ie provide their VAT number, or if not registered in their country, proved suitable proof such as business documentation, website etc.

If you are under the UK VAT threshold, and supplying  non-business customers in EU states with digital products or services, you will need to:

• register for VAT
• collect information from your customers
• complete a quarterly UK tax return - if you are below threshold this will be a 'NIL' return
• complete a MOSS return: these are calendar quarters - first return runs 1 January to 31 March.
• On a MOSS return you will need to complete a seperate line for each member state and type of VAT rate - if done online the form will calculate automatically
• NO digital supplies made - a 'nil return' must be submitted.

 
Any VAT incurred on expenditure wholly and solely in relation the declared digital sales to EU states can be claimed.

The above is a taster of the new rules governing the supply of digital services to private consumers.  If you are caught by this new legislation, or think you are, please ensure that you get professional advice and assistance.

For more information on this subject please contact Cecile Hunt. 

Cecile is licensed to practice in accountancy and has run her own business for ten years, she has a wealth of experience in advising and assisting start-ups, micro and small businesses in running their business' plus advising on, and dealing with, taxation issues, including  VAT, of sole-traders, limited companies, partnerships and personal tax.

Much more Information on MOSS can be obtained from:

https://www.gov.uk/government/publications/vat-supplying-digital-services-to-private-consumers