VAT Changes for Digital Services

On Thursday Iain Masterson, Senior VAT Manager at Chiene and Tait, came by to CodeBase talk to our companies about the impending VAT changes, due to take effect on January 1st.

The talk was a fascinating insight and vital overview of the implications of the changes and what they mean for companies in our building, and others like them, who supply digital services. 

Iain has been kind enough to share his notes with us from his talk which are posted below. The information is really worth a read for most small business, e-commerce or app developers and provides a clear insight into VAT as it stands within the EU. 


VAT change for supplies of digital services to EU consumers

On 1 January 2015 any business supplying digital services to consumers in the EU will be affected by a VAT change which will require them to register for a special VAT scheme known as the Mini One Stop Shop (“MOSS”).  Currently, UK VAT registered businesses have been accounting for UK VAT at 20% on these supplies, however the change will make VAT payable in the country where the customer is located.   The types of services affected are as follows:

  • Broadcasting includes the supply of television or radio programs to a schedule by the person that has editorial control of those programmes;
  • Telecommunications include the service of sending or receiving signals by wire, radio, optical or other systems. It includes fixed and mobile telephony, fax and connection to the internet;
  • E-services include: video on demand, downloaded applications (or ‘apps’), music downloads, gaming, e-books, anti-virus software and on-line auctions. 

As well as having to register for this scheme by 1 January 2015, affected businesses will need to consider the impact the change will have on pricing structures as VAT rates in the EU vary across Member States.  The MOSS VAT returns have to be submitted on a quarterly basis and have to be completed in GBP so businesses using other currencies for payments will have to convert their sales values to GBP at the end of the period or on a weekly/monthly basis using European Central Bank rates.

One key practical feature of the change is determining where customers are actually located and HMRC has produced some guidance to assist with this process.  This is often determined by the method by which the customer downloads the service, however we are aware that this area may prove to be problematic.  In addition, once the country of consumption has been identified the business will have to obtain 2 forms of evidence confirming the location and retain this evidence as part of the record keeping requirements of the scheme.

These changes will have particular impact on smaller businesses, particularly those who are currently not VAT registered because all businesses who supply digital services to EU consumers will have to comply.  Although the UK Government is being challenged by small business leaders to consider exempting smaller businesses from this change, at present it would appear that any change would have to be agreed by all EU Member States which may take some time to resolve.

We have provided some useful links providing further information on this change here. This also provides the contact details of a VAT expert who will be able to further assist with any further questions.  

Iain Masterton - Senior VAT Manager, Chiene and Tait