What is happening?
From 1 January 2015 the VAT rules for cross-border B2C supplies of ‘digital services’ (i.e. broadcasting, telecoms and e-services) will change. From that date, VAT must be accounted for in the member state where the customer normally lives, rather than where the supplier of the service is established. This means that sellers of digital services will no longer be able to unfairly undercut businesses in the UK by locating themselves in another EU member state with a lower VAT rate.
What supplies are covered by the changes?
The changes apply to digital services. These are broadcasting, telecommunications and e-services that are electronically supplied.
It is unlikely that any small businesses supply broadcasting or telecommunications, but many will supply e-services to non-business customers in other EU member states and they will have to charge and account for VAT on their supplies.
Sales not affected by the change
Using the internet, or some electronic means of communication, just to communicate or facilitate trading does not necessarily mean that you are supplying e-services.
Using the internet for the following does not count:
- supplies of goods, where the ordering and processing are electronic
- supplies of physical books, newsletters, newspapers or journals
- services by lawyers and financial consultants who advise clients through e-mail
- booking services for entertainment events, hotel accommodation or car hire
- educational or professional courses, where the content is delivered by a teacher over the internet or an electronic network
- offline physical repair services of computer equipment
- advertising services in newspapers, on posters or on television
E-services which are covered by the change in rules
The 1 January 2015 rule change only applies to e-services that are electronically supplied.
An e-service includes things like:
- images or text, such as photos, screensavers, e-books and other digitised documents e.g. pdf files
- music, films and games, including games of chance and gambling games, and of programmes on demand
- on-line magazines
- website supply or web hosting services
- distance maintenance of programmes and equipment
- supplies of software and software updates
- advertising space on a website
For further information please contact John Elliott.