Background:
From 1 January 2015, for all ‘digital' supplies to EU consumers, VAT will be due in the country of consumption rather than in the country where the supplier is based.
The new rules do not just apply to companies like Amazon - they also apply to UK businesses making supplies to consumers in other EU member states.Example: Where a UK consumer downloads an e-book onto their Kindle, Amazon will in future pay VAT in the UK rather than in Luxembourg, where they are based.
These changes will protect over £5 billion of UK revenue and help many UK businesses who face unfair competition from low vat competitors.
Many small and micro-businesses selling digital services have raised concerns about the impact on them. At £81,000, the UK has the most generous VAT registration threshold in the EU and over 2 million (around half) of UK businesses fall under this. The UK argued strongly for a cross-border threshold so that the smallest businesses would be outside the system, there was no support from other Member States or the Commission.
Measures to help small and micro-businesses
There are several aspects that will be helpful to many businesses, but the situation could still potentially be more burdensome than pre-January 2015.
If a micro or small business trades through a third party platform or marketplace it will be the responsibility of the marketplace operator to account for the VAT.
Any small and micro-businesses selling digital services that are affected, can also opt to use the Mini One Stop Shop (MOSS) online service for supplies to consumers in other Member States. The Mini One Stop Shop (MOSS) allows businesses to account for all the VAT due throughout the EU via a single registration and simple process (HMRC's UK MOSS has been open since October 2014)
HMRC have confirmed that for those making ‘digital' supplies to EU consumers this threshold still applies on UK activity and the Mini One stop shop is available for any cross border provision.
HMRC continues to provide guidance to all businesses, including via channels such as Twitter, to ensure they understand all their optionsWhere do I get further help and advice? About the changes: www.gov.uk/vat-on-digital-services-in-the-eu
More detailed guidance: www.gov.uk/government/publications/vat-supplying-digital-services-and-t… are digital services?
Digital services include things like:o broadcasting - the supply of television or radio programso telecommunications - fixed and mobile telephony, fax and connection to the interneto e-services - video on demand, downloaded applications (or ‘apps’), music downloads, gaming, e-books, anti-virus software and online auctions What is the impact on EU/UK businesses?
The changes will affect EU businesses which supply digital services to non-business customers in other Member States, as local VAT will now become due on those sales.
In principle, businesses affected should register for VAT in all the Member States in which they have consumers. The changes are, however, supported by an optional (for business) facilitation measure - the VAT Mini One Stop Shop (MOSS).
This enables the EU business to register in just one Member State and account for VAT due in all other Member States using a single return and making a single payment covering all the VAT due.What about small and micro-businesses?
Many small and micro-businesses selling digital services will not be affected as they trade through a third party platform or marketplace (e.g. an app store).
Where this happens it will be the responsibility of the marketplace operator to account for the VAT.
Any small and micro-businesses selling digital services that are affected, can opt to use the Mini One Stop Shop (MOSS) online service for supplies to consumers in other Member States.Can we reverse these changes?
No – and we wouldn’t want to, given the revenue risks and the unfair competitive advantages that would otherwise fall to certain businesses. It would need a proposal from the EU Commission and the unanimous agreement of all 28 MSs to reverse or alter these changes.Why doesn’t the threshold apply here?
The VAT registration threshold applies to UK domestic turnover. It doesn’t apply to cross-border sales.
That is because the VAT is not UK VAT. There is no cross-border threshold for services in EU law.
Although we could go back to the Commission and Member States and again seek the introduction of a minimum threshold (e.g. between £1k and £5k) for cross-border digital service supplies, it is very probable that those Member States with low or zero domestic VAT registration threshold would be opposed for fear it would undercut their businesses.