VAT on digital services in the EU

This change means that local VAT has to be accounted for in the country where the customer is situated, regardless of whether the UK taxable sales breach the UK VAT threshold. Prior to the MOSS (Mini One Stop Shop) system being introduced, the only option appeared to be for the UK seller to register for VAT in every EU country where their digital services are sold to non business customers. This would clearly be hugely impractical for small businesses and probably unworkable. Therefore, HMRC created the VAT MOSS system, allowing businesses to register for VAT in the EU countries simultaneously, via a central facility in the UK.

Examples of digital services includes electronic services such as e books, video on demand, music downloads or software where the service is automated. (It is also encompasses certain Telecommunications and Radio/broadcasting services).

There were some problems with the initial guidance put out, as it would have required all digital services providers to register for VAT in the UK before they could join MOSS. This would have resulted in VAT having to be charged on their UK domestic sales, even if their total sales were below the UK VAT threshold, and so the Government agreed to change this, such that the seller can adopt the following approach:

  • separate out its UK sales from its EU sales
  • only register the EU part of its business and use a special “MOSS” VAT registration number to register under that system
  • UK domestic sales of digital services remain VAT free for businesses where these are not in excess of the VAT threshold

If the sales to UK customers are already above the VAT threshold though, then UK VAT will have to be accounted for in the normal way.

We have already successfully helped a client prepare and submit its first MOSS VAT return and when coupled with appropriate accounting software, such as Xero, the burden can be minimised and the whole process made as hassle free as possible.

The current HMRC guidance regarding the supply of digital services to non business consumers can be found here https://www.gov.uk/government/publications/vat-supplying-digital-services-to-private-consumers