This article deals only with the supply of electronic services. The place of supply rules for broadcasting and telecommunications services are similar but involve a “use and enjoyment” override (see VAT Notice 741A Place of supply of services for more information).
Place of supply of electronic services
The current position
1. If your customer “belongs” in another country outside the EU the supply of electronic services is deemed to take place in the customer’s country and so is outside the scope of VAT. This applies to business and non-business customers.
2. If your customer is a business customer who belongs in another EU country the supply of electronic services is deemed to take place in the customer’s country. The customer deals with the VAT in their own country. The supply is outside the scope of UK VAT but it may need to be included on your VAT return and an EC Sales List.
3. If your customer is a non-business customer who belongs in another EU country the supply takes place in the UK and UK VAT is charged and accounted for in the same way as any other UK sale.
From 1 January 2015
There are no changes if conditions 2 or 3 above apply. However, if condition 3 applies the supply is deemed to be made in the EU country where the customer belongs. This means that if you supply electronic services to non-business customers in other EU countries you will be required to register for VAT in those countries and account for VAT to the authorities in each relevant country. The sales and VAT will no longer be included on UK VAT returns.
Under the current rules, you are not entitled to a registration threshold in other EU countries, which means that you may have to register in other EU countries even if you do not have to register in the UK (because your UK sales are below the
Is there an alternative to registering for VAT in other countries?
Fortunately, HM Revenue & Customs are introducing the VAT Mini One-Stop Shop (VAT MOSS) which will be a means of declaring and paying VAT arising in other EU countries. Using VAT MOSS will not be compulsory but most businesses will probably find that this is the most convenient way of meeting their VAT obligations in other EU countries. VAT MOSS will be an online service and it is intended that businesses will be able to register for this service from October 2014. However, businesses will have to be registered for VAT in the UK to be able to use VAT MOSS and so this may effectively force some small businesses to register even though their turnover is below the VAT registration threshold.
What should you do now?
If you make sales of services via the internet you need to check to see whether the services fall into the definition of “broadcasting, telecommunications, and electronic services”.
If you make these types of service to non-business customers in other EU countries you need to start planning how you will deal with the change that takes place on 1 January 2015.
For instance: Will you register in VAT MOSS? If not, how will you manage VAT registrations in other EU countries? How will you identify sales in the relevant EU countries?
More guidance on how to establish where your customers“belong” and what type of services are “electronic services” is in VAT Notice 741A Place of supply of services. If in doubt seek advice.
HM Revenue’s latest guidance to the changes and the Mini One-Stop Shop is at http://www.hmrc.gov.uk/posmoss/index.htm