10 April 2017

Selling digital services to private individuals? Then read on…

This article highlights the VAT issues relating to the sale of digital services by UK businesses to consumers based in other EU countries.

What are digital services?

Digital services are electronic services supplied digitally for a consideration. Examples include:

  1. Downloading or giving access to things such as music, games, e-books and TV programmes online;
  2. The provision of telecommunication services, such as broadband, voice calls and messaging;
  3. Providing e-services, such as software downloads, web hosting and advertising space on a website.

Digital services do not include the sale of goods via online platforms or the sale of services where a reasonable degree of human intervention is required. For example, live-streaming a seminar would not be classed as a digital service as a speaker is involved. Similarly, providing help via a call centre or booking car hire online does not fall under the rules.

What do we mean by consumers?

Consumers are customers who are not acting in the course of a business. This normally means private individuals, however, it can also extend to public authorities and charities who use digital services for non-business activities.

If the digital service is taxable (which will apply in most cases) the supplier must charge the customer VAT at the rate applicable in the customer’s country. Suppliers can choose to do this in one of two ways:

  1. Register for VAT in each country their customers are based. This means having to deal with local tax authorities directly or appointing an agent to do so.
  2. Register under the MOSS (Mini One Stop Shop) system via the HMRC portal. This results in the submission of a return each quarter covering supplies made in all EU countries and paying the VAT due directly to HMRC. HMRC then distributes the VAT to each country. This will be the simpler option for many.

Some points to note are:

  1. The above rules were introduced on 1 January 2015.
  2. There is currently no registration threshold – simply selling an app could result in a liability to account for VAT. The EU Commission has proposed thresholds of £10,000 or £100,000 from 2018, however this has still to be agreed.
  3. The liability to register and account for VAT on overseas sales applies even when a supplier is not registered for VAT in the UK.
  4. If you are supplying digital services to VAT-registered businesses in other countries, you would not normally charge UK VAT. Instead, the business customer would generally account for local VAT.
  5. A quarterly European Sales List return must be submitted.
  6. The rules should apply post-Brexit.

The rules are aimed at stopping suppliers of digital services gaining an advantage by locating themselves in a country with a low VAT rate.

Recording requirements mean that suppliers must collect and retain information on where their customers are based – payment services used in the supplier’s website may assist with this.

If you have any questions or are unsure of whether you are complying with current regulations, please contact us. 

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