New VAT rules for online sales – How will it affect you?

From 1 January 2015 new VAT rules will be introduced which will affect all businesses selling broadcasting, telecommunications and e-services to non-business customers in other EU countries. This article will focus primarily on the e-services changes as these are likely to have the most widespread impact. However, it is still vital to understand how these new rules affect you if you are providing broadcasting or telecommunications services.

What are e-services?

E-Services are services that are heavily reliant on the internet for their execution and include the following services:

  • Video on demand,
  • Downloading of apps,
  • Music downloads,
  • e-books,
  • Gaming,
  • Anti-virus software.

These examples are not exhaustive and it will be important to understand whether the supplies that you make will fall within these new rules. HMRC’s definition of e-services can be found here: http://www.hmrc.gov.uk/manuals/vatpossmanual/vatposs13550.htm

What are the rule changes?

The major change which will occur from 1 January 2015 is that the sale of any of these e-services by a UK business to a non-business customer located elsewhere in the EU will no longer be subject to UK VAT.

VAT will instead be charged in the country where the customer is based. This is currently already the treatment for sales to business customers in other EU countries.

So, if for example your business sells a new app for a smart phone or tablet to a private individual based in Italy, UK VAT of 20% will no longer be chargeable, and instead Italian VAT (which is currently 22%) will need to be applied.

Sales to customers located outside of the EU will continue to be outside the scope of EU VAT.

Practical implications

If you are not registered for UK VAT as you are trading below the VAT registration threshold in the UK (currently £81,000), you may believe that these changes will not affect you. Unfortunately this may not be the case.

When you make supplies in another EU country, the registration threshold is generally £nil. Therefore, if you make a sale to a non-business customer based in another EU country, you will immediately have to deal with the VAT implications in that country.

Another practical issue that may arise from 1 January 2015 is that when you are making online sales you may not know where your customer is located. This is something which will need to be considered well in advance of the 1 January 2015 start date.  If you intend to continue making sales to these customers, further information will need to be obtained from them to ensure that the correct VAT treatment is applied.

 

What is being done to help you?

To prevent the need for businesses to be required to register for VAT in every country where they supply e-services to non-business customers, a VAT Mini One Stop Shop (MOSS) is being introduced.

This is an online service that will give businesses the option of registering in the UK to account for the VAT due in respect of business to non-business customer supplies of these services in all of the other EU countries (at the appropriate rate for each country) by submitting a single return to HMRC.

This service will significantly reduce the administrative burden which would have existed if a requirement to register in multiple countries had arisen.

Although these rules do not take effect until 1 January 2015, businesses will be able to get themselves prepared for the changes by registering for MOSS from October 2014.

What next?

Further information is due to be released by HMRC as the 1 January 2015 deadline draws closer. However, if you believe your business may be affected by these changes and you would benefit from some further advice or assistance in registering for MOSS, please feel free to contact me at david.graham@armstrongwatson.co.uk

David Graham, Assistant VAT Consultant

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