1 January 2015
VAT on eServices
The VAT rules for ‘eServices’ are changing with effect from 1 January 2015. ‘Eservices’ has a very wide definition being broadly any service provided on an electronic network, such as a website or webpage. Examples include downloading applications (“apps”), e-books, on-line auctions etc but not the supply of goods.
The rules are changing for the supply of services from business to consumer within the EU.
Broadcasting, telecommunication and electronic services
Currently, the basic rule for services supplied by a business to a business customer is that the supply is made where the customer is based, therefore no VAT is charged on a service supplied by a UK business to an EU business. The EU customer should account for VAT in their country through the reverse charge mechanism.
For services supplied to non-business customers, broadly the supply is made where the supplier is based. Therefore, a UK business will currently charge UK VAT on services supplied to a non-business customer, even if they are in another country in the EU.
From 1 January 2015, the basic principle is that eservices supplied to non-business customers within the EU are taxed in the consumers country.
The registration threshold for VAT in the UK is currently £81,000, one of the highest in the EU. To be entitled to another country’s VAT threshold for supplies made in that country, a business must be established in that country. Many electronic suppliers will only be established in one country, they will not have separate offices overseas, therefore all supplies made overseas in the EU under the new rules must be subject to VAT in the country of consumption. The UK business providing the eservice must therefore register for VAT in the overseas country and charge VAT at the correct rate for that country.
To save each business having to register for VAT in a large number of EU countries, HM Revenue & Customs (“HMRC”) have set up a Mini One Stop Shop (“MOSS”) to simplify registration for EU supplies of eservices. However, using MOSS involves formally registering for VAT in the UK and meaning that VAT must be charged on all taxable supplies, including to UK customers.
The new rules are clearly very significant and complex and will put additional reporting burdens on many businesses.
We have only been able to provide the briefest overview of the VAT changes here so if you think the changes will affect you or you need further information please contact our Tax Director, Jenny Marks.
P.S. The Chancellor, George Osborne, will present his Autumn Statement at 12.30pm on Wednesday 3rd December 2014. We will be tweeting the event live from our twitter account (@murasbakerjones) and following up with a summary of the key points in a Muras Matters email.