New VAT changes to e-Services – a beginner’s guide
Changes are being made that will affect VAT on B2C ‘e-services’. For the uninitiated here are some services that will be affected:-
- Telecoms (telephone, fax, internet access)
- Broadcasting (radio, TV, live internet broadcasts)
- E-services (video on demand, downloads of music and apps, online gaming, e-books, software and online auctions)
(A more extensive list can be found here)
The guidance sets out the conditions that must be met to be caught by this rule change:
- A service – as opposed to physical goods
- Information technology-based
- Provided electronically – through the internet, copper or fibre optic cable and satellite
- The supply is fully automated – only minimal human intervention
For example, access to an automated learning programme and resources over the internet would be considered an e-service, however live teaching (lectures, webinars etc) would not as there is a significant element of human interaction.
Previous rules stated that the place of supply is where the supplier is located, therefore the supplier’s local rate of VAT is charged.
The changes make the place of supply where the customer is located.
Let’s look at an example:-
If I’m selling an e-book to a person living in Paris, under the old rules I would charge 20% VAT, however under the new rules I would have to register in France and charge 5.5%
So what are my options?
If you’re providing B2C e-services to EU customers, your options are to individually register in each EU country, or register for MOSS (Mini One Stop Shop) via HMRC.
Each EU country has different VAT registration thresholds, so you would need to consider each one separately, review your sales on a frequent basis and submit each return individually. This is time-consuming, expensive, and likely to be prone to errors.
As an alternative to the above method, HMRC has introduced the Mini One Stop Shop system, whereby every quarter a return is required to be submitted declaring all EU sales, and all VAT paid in one go. One payment is made by the supplier, and the tax bodies will then make the individual payments to each country.
This is significantly simpler to operate, however one drawback is that your company has to be registered for UK VAT to use this, even if your turnover is below the threshold (Currently £81,000 as at December 2014).
This would normally mean that you have to charge your UK customers VAT, which can cut into your profit (assuming they are not VAT registered, and you can’t increase your prices). However, HMRC have introduced an option not to charge UK VAT.
Those businesses using MOSS are required to confirm the location of their customers by using two pieces of distinct information, and that information needs to be retained for several years.
HMRC have relaxed those rules for business with turnover below the UK VAT threshold until June 2015. They can use the information provided by the payment services provider (SagePay, Global Payments etc).
There’s a lot to take in but hopefully this guide to the VAT changes to e-services will help. If you need any more help then please call – we’d be only too happy to give you some advice.