What VAT challenges can telecoms expect in 2015?


In just over a month’s time, new rules are set to come into effect that will change VAT obligations for UK companies offering telecommunications and other digital services to customers in other countries.

As of January 1st, 2015, VAT will be applicable at the rate set by the consuming country rather than the supplying one as a result of an EU ruling confirmed in April this year, but is this likely to cause headaches for businesses that trade across multiple nations?

VAT’s the big idea?

The move has been engineered to discourage companies from deliberately locating themselves in countries with low VAT rates. Amazon, PayPal and Skype are three examples of digital giants to have set up base in Luxembourg, presumably taking advantage of the micronation’s 15% VAT rate. It is hoped that the rule will therefore encourage VAT to be paid at a rate more reflective of the EU in general and prevent a disproportionately large number of companies using certain nations’ rates.

International business tax does appear to be taking more of a country-by-country focus, with another example being the number of businesses now claiming back the VAT difference on goods they bring in from overseas, but this new obligation could be something of a drain on the time of SMEs, which will need to get to grips with the tax requirements of nations other than their own. Should they fail to do so promptly, they are liable to be hit with interest payments on their VAT, as well as possible tax penalties.

It could be a financial burden too, with the UK’s rate of 20% already being among the lowest in the EU. Many nations, including Ireland, apply one of 23%, and Hungary’s is the highest at 27%.

VAT’s the answer?

HMRC is encouraging businesses to sign up for its VAT MOSS service, as are a number of Britain’s leading accountants. The scheme is aimed at making the process more straightforward, allowing companies to register their own country of operations, with HMRC contacting other EU member states in which VAT might be payable.

Tax concerns and obligations are one of the biggest fears of business professionals, as well as one of the main demands on their time and resources, which is why many of them look outside of their company for assistance. With the help of an expert outsourced accounting service, UK business owners can be sure that their books are in good hands and that they are able to minimise mistakes while maximising the control they have on their company.