Have you designed an app or written a video game or an e-book which is available online for sale to non-UK customers?
Do you sell digital products to retail customers? It might be your main business activity, or you may design/write in addition to your “day job” or main business activity and supplement your income by sales to customers in the UK and abroad. If so, chances are that you will have to register for VAT from 1 January.
At present, UK business doing B2C sales of digital services charge UK VAT and pay it to HMRC on their UK VAT returns.
The new rules that come into effect on 1 January 2015, require any business who sells digital services to consumers (i.e. “B2C” sales) in other EU countries to charge VAT in that country from 1 January 2015.
As if that wasn’t enough, you’re also, in principle, required to register for VAT in your customer’s countries. Thankfully there is an alternative arrangement that enables you to register under a special arrangement in the UK and pay the VAT charged at the rates in your customers’ countries to HMRC; the “MOSS” scheme, which I’ve explained below. But this is in addition to and separate from your existing UK VAT registration, so in the future you’ll have to submit 2 separate VAT returns; one for your normal sales and the other for your B2C EU sales.
And it applies to ANY UK business making such sales, even if they aren’t already registered for VAT in the UK. This is because there are no registration limits for the sale of digital services to consumers outside the UK; so you have to register even if you only sell a few apps, games or e-books to customers on the continent or other EU countries.
So what’s it all about: why is it happening?
When I first looked into these new rules earlier in the year, I initially thought that they would only apply to established businesses selling e-services, including the Amazons of the retail world and software companies designing video games and anti-virus software. But having spent more time looking into the rules and how they apply in practice, it’s clear that they will apply to many more UK businesses.
EVEN IF YOU ONLY MAKE THE OCCASIONAL SALE OF AN APP, AN E-BOOK, SOFTWARE OR ANY E-SERVICE COVERED BY THE RULES TO NON-BUSINESS CUSTOMERS, THEN YOU HAVE TO CHARGE VAT AT THAT COUNTRY’S RATE.
Many of us, myself included, have such products, in my case an e-book. And there must be thousands of other people out there who’ve written books that are sold in e-book format, designed new software or games and may be affected by the new rules even if they only make occasional or low volume B2C sales to customers in other EU countries. In the past, we’ve been able to charge UK VAT on such sales and pay it to HMRC on our UK VAT returns. So if you sell an app or an e-book to a non-business customer in say France or Austria would charge UK VAT on the sale.
However, one of the main principles of EU VAT rules is that the final consumer, i.e. private individuals, should pay VAT on goods and services at the rate charged in the “country of consumption”; i.e. where the consumer lives.
The current arrangement where we would charge UK VAT was always intended to be a temporary arrangement. From 1 January, 2015, EU rules will now require businesses making such sales to charge VAT at the rate due in the customer’s country. So you’d have to register for VAT in France or Austria and charge French or Austrian VAT and submit VAT returns to the French or Austrian tax office.
The “one-off” registration arrangement: the “mini one-stop shop” (“MOSS”) scheme
The EU recognized that registering for VAT in every country would be very difficult for the businesses and the tax authorities to manage. Therefore, the EU is introducing a one-off registration scheme called the “mini one-stop shop” or the MOSS scheme whereby such businesses can register for VAT in one EU country. .
What this means is that you’ll charge VAT to customers in each country at the appropriate national rate, and declare sales for all countries on one VAT Return. The tax authority in the country of registration will then pay the VAT to the tax authority in the customer’s country. So you’d include VAT from your sales to French and Austrian customers on your UK MOSS VAT return.
If you’re already registered for VAT in the UK but make B2C sales of eservices to non-UK consumers in other EU countries, then you will also have to register for the MOSS scheme. Here is the link to HMRC’s guidance about the new scheme http://tinyurl.com/q8knkfa.
The only alternative is to register for VAT in those countries where you sell to non-business customers. So the MOSS registration scheme really is the lesser of two evils for you if your business is affected.
THESE RULES WILL APPLY TO YOU IF YOU OR YOUR CLIENTS MAKE EVEN OCCASIONAL OR SMALL VALUE B2C SALES OF DIGITAL SERVICES TO CUSTOMERS IN OTHER EU COUNTRIES. There are no de minimis limits – you have to declare even very low value or low volume sales on your MOSS return.
I am writing an article about the more practical issues of the scheme, but in the meantime, please checkout HMRC’s guidance http://tinyurl.com/q8knkfa if you think that the rules will apply to you. And feel free to comment or ask questions about the new rules in reply to this blog.
Marie
November, 2014