News

Big Changes are happening to place of supply rules fro VAT in relation to the supply of electronic internet services within the EU. These changes will affect quite a number of businesses involved in supplying services over the internet, no matter how small or big they are!

Current Rules

When a business makes a supply of services to "non-business" consumer in another member state i.e. anyone who does not supply a VAT Number or suitable evidence that they are in a business, then the business will have to charge UL VAT on top of the value of the supply. This currently applies to the sale of video, apps; music downloads etc. to personal customers.

Changes from 1st January 2015

The change coming into effect from 1st January 2015 will mean that the supply of electronic services (and telecoms and broadcasting) will become taxable WHERE THE CUSTOMER BELONGS OR USES THE SUPPLY, rather than where the supplier belongs. Instead, the supplier will have to account for foreign VAT. As this could mean VAT registration in anything up to 28 member states for account businesses, a less burdensome; alternative can be used - the "Mini-One Stop Shop" or MOSS.

The changes will not affect any business that is involved in ONLY making supplies of these services to business customers as they can generally zero rate the supply and the reverse charge is applied by the customer.

What is MOSS?

Businesses which are involved in these supplies to non-business customers in other EU countries can register for cross-border supplies in their home member state. They will then make a SINGLE RETURN to their home tax authorities and make a SINGLE PAYMENT. The rate of VAT applicable in the EU country must be charged. So for example, a UK trader will declare any such supplies to HMRC and make payment to them. HMRC will subsequently pass on the information and the money to the destination countries.

What services are covered?

ELECTRONIC SERVICES - includes video on demand, downloaded applications (apps), music downloads, gaming, e-books, anti-virus software and on-line auctions. It also includes supply of digitised software, network support, web hosting, Internet Services packages and supply of distance teaching.

Any business who makes supplies of services which are ordered by consumer customers from a website and delivered directly to their computer must consider whether these rules will impact upon them.

THERE IS NO EFFECT ON THE SUPPLY OF GOODS THAT ARE ORDERED OVER THE INTERNET BUT PHYSICALLY DELIVERED TO THE CUSTOMER.

BROADCASTING - includes the supply of television or radio programmes to a schedule by the person that has editorial control of those programmes.

TELECOMMUNICATIONS - Includes the service of sending or receiving signals by wire, radio, optical or other systems - and includes fixed and mobile telephony, fax and connection to the internet.

The above definitions cover the main areas however it is recommended any business involved in any kind of digital services, considers whether or not they will be impacted by the new rules.

MOSS Registration

Any business affected by the new changes can register for MOSS now via HMRC online. MOSS returns will be required to be submitted for calendar quarters within 20 days of the end of the period. Payment will be due at the same time.

What if I am not VAT registered in the UK?

Many suppliers of this type of service start out below the current UK VAT registration threshold of £81,000. As from 10 December 2014, HMRC are changing the VAT registration process to make it possible to register for VAT SOLELY for the purpose of gaining access to MOSS and still not be liable to account for VAT on domestic supplies.

Action

Every business that is involved in any form of internet selling should consider whether they are affected. If they are, immediate action should be taken.

If you wish to discuss how the above changes may affect your business please contact Una McKearney in our Tax Department on 028 8775 2990 or email una.mckearney@cavanaghkelly.com