A change to vat on digital sales within the EU came into effect from the beginning of 2015.
Previously, any VAT on digital sales was accounted for in the country of the seller. However, from 1 January 2015, the place of supply will change to the country where the consumer is established. What this potentially means is that a business with digital sales to EU countries must register for VAT in the country where the sale has taken place, which could mean multiple VAT registrations, an administration nightmare.
To clarify what digital sales are, digital sales means the supply of telecommunications, broadcasting and electronically supplied services. HMRC list out some examples of e-services, which include things like:
- Images or text, such as photos, screensavers, e-books and other digitised documents e.g. pdf files;
- 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.
If the above are electronically supplied – i.e. delivered over the internet with minimal or no human intervention – then they are categorised as “digital services” and are covered by the rule change. If you sell through another market place e.g. Amazon, the Apple Store, etc., then the VAT issue will be handled by them.
Suppliers will either need to register for VAT in every Member State where their digital supplies are made or make use of an EU-wide accounting system known as the ‘mini one stop shop’ (MOSS). NB this affects any business making digital sales, even if they are not registered for VAT. However, if you are not registered for VAT, you can register for VAT in the UK and while your UK sales are under the VAT registration threshold (currently £81,000) you do not need to account for VAT on your UK sales.
More details about registering for MOSS can be found here.