From the beginning of next year, a major change in the whole EU Value Added Tax regime is due to come into force and it could affect many businesses which might well have thought were immune to them. On 1st January 2015, businesses that supply digital services to individual consumers as opposed to other businesses within the EU will not only have to start charging VAT to these customers but must do so at the rate prevailing in the country where the customer, not the supplier, belongs. Those whose business clearly involves the provision of digital services should already be making appropriate plans to prepare for this significant development but Baker Tilly, the leading firm of accountants and tax advisers, is warning that many firms who do not consider themselves as providers of such services should think again and double check if this is indeed the case.
“Digital Services” clearly involves obvious areas like telecoms, media, broadcasting, video, music, online gaming, software and applications for smartphones but, as the accountants point out in their message to clients, a host of other activities fall into the net and any organisation in doubt should check its status as a matter of urgency.
The accountants suggest that other activities that could be classed as providing digital services include using a third party such as an online retailer to sell goods or services, delivering webinars or other forms of online training, accepting membership subscriptions or providing online access to any forms of information such as text images or business reports.
The idea of having to charge customers VAT on services based on the rate prevailing in the EU country in which they, not you, are based, may seem like a formidable undertaking but, fortunately, it does not require businesses to register for VAT in every country where they have customers. Instead, they have the much simpler option of registering in just one country and using just one quarterly VAT return to account for any overseas VAT due. As usual, HMRC have come up with yet another catchy acronym,” VAT MOSS”, which stands for VAT Mini One Stop Shop and UK businesses will be able to apply for MOSS registration from October 2014 onwards.
Since there is such a huge disparity between VAT rates for digital services in individual member states throughout the EU (ranging from 3% in Luxembourg to 27% in Hungary) businesses may well have to decide on a pricing strategy to deal with this. Furthermore, if you operate as a business and supply digital services to consumers in the EU and are not presently registered for VAT due to the fact that your revenues are below the threshold, then you will need to move fast and register for VAT.
No doubt VAT experts in major accountancy firms will soon be busy fielding such enquiries such as what happens if someone purchases a digital service using a mobile phone or while travelling on a train between member states? Which VAT rate should be applied in these and other specific circumstances?
If you need advice about changes to VAT regulations, or any aspect of taxation, Baker Tilly has a team of experts who specialise in tax services ready to help you.