Companies that sell digital services and products to European countries are facing new rules for VAT from 1st January 2015. The VAT rules in the country of the buyer apply to all goods sold, which means a trader may have to register for VAT in each country where digital sales are made.
A number of small businesses have expressed concerns about the new regulations, with some companies worried they will be forced to close. HMRC has announced a transitional period until 30th June 2015, allowing companies to prepare for the changes. Although the threshold for VAT is currently £81,000, anyone who supplies digital services and goods to other European countries will have to account for the VAT in the country of the buyer, creating more administration for the seller.
When does it apply?
For the new rules to apply, a business has to meet specific criteria. The regulations only apply to digital goods sold by a business in the UK to a customer in another country within the EU. All other goods sold on the internet do not fall within the rules. The supplies must also be made to a private customer in the EU country, and a charge must have been made for the service or goods. Companies that are based outside Europe also have to abide by the new regulations if they make sales to someone in the EU.
What are digital services?
Only digital services and goods are affected by the regulatory changes. This may include telecommunications, television and radio broadcasting, or e-services like games, films, music, e-books and online magazines. If you advertise space for sale on your website, this will fall within the new regulations, as will web hosting services.
How to account for VAT
Businesses have two options for accounting for VAT. They can either register with the VAT Mini One Stop Shop (MOSS) or register for VAT in each EU country where sales are made. You have to register for VAT in the UK to be able to use MOSS. Using this service means you can complete just one return to account for all VAT and HMRC will then distribute on your behalf.
VAT is a complex subject and, unfortunately, the new regulations create an even greater level of administrative concern for companies, especially smaller businesses. Contact us if you would like advice or support.