New VAT rules for electronically supplied services

Broadcasting, telecommunication and electronically-supplied services (BTE) are frequently supplied internationally from the UK.  The VAT rule for BTE supplies to non-business customers such as the general public (B2C) is currently straightforward: UK suppliers charge UK VAT.

On 10 December 2013, the draft Finance Bill 2014 was published including proposed legislation which will replace this simple rule with a far more complex requirement.  From 2015, suppliers will charge VAT in the country where their non-business customer is located.  This might seem like a straightforward change, but in practice a supplier of BTE services will need to register for VAT in each EC member state where it has non-business customers.

This will lead to further practical difficulties in terms of language barrier, differing local interpretations and practices, incorporating different rates of VAT into a single retail pricing model, submitting VAT returns in different formats for different periods in different EC member states, and so on.

Some of these issues will be resolved with a new form of VAT registration.  From 1 October 2014, BTE suppliers will be able to apply for a new mini one stop shop VAT registration (“MOSS”), in preparation for the rule changes taking effect from 1 January 2015.  There will be two one-stop shops:

  • the existing “non-Union” MOSS, which is for businesses established only outside the European Union, and
  • the new “Union” MOSS, which is for businesses established in at least one member state of the European Union.

The idea of the new Union MOSS is that a supplier established in the EC (e.g. in the UK) will not be required to register for VAT in other EC member states in respect of their B2C supplies of BTE services.  The advantage is that UK suppliers will complete their MOSS VAT returns in English and submit these to HMRC.

However, many practical difficulties will remain, such as the following.

  • It will still be necessary to account for any overseas VAT on such supplies by reference to the rules in force in the customer’s EC member state.  For instance, different VAT rates will apply and local interpretations of whether a particular supply qualifies as (for example) an e-service might differ too.
  • Any queries or difficulties after the VAT return has been submitted to HMRC will result in correspondence between the UK supplier and the overseas VAT authority.
  • The rates of VAT in EC member states currently vary between 3% and 27%.  This will make it difficult for suppliers to market a single VAT-inclusive retail price that achieves the required profit.
  • It will also be necessary to identify the location of the non-business customer.  There are different rules depending on the means of delivery of the service: via wifi hotspot, on board a train, through a landline, through a mobile phone, and so on.

In addition to these practical difficulties, the administrative rules applying to the Union MOSS returns are also different from the standard UK VAT return submitted to HMRC.  The deadline for submission will be 20 days after the period end and the return periods are fixed as calendar quarters.

These changes will affect those who make supplies of broadcasting, telecommunication and electronically-supplied services.  This will include supplies of downloaded applications (“apps”), music downloads, video on demand, gaming, e-books, anti-virus software and so on.  Practitioners should be addressing the practical impact of these changes with their clients as soon as possible, and consider whether registration for a MOSS might ease the additional administrative burden on their clients.

For further information or help on electronically supplied services, registering for the new one stop shop and preparing for the new VAT rules in 2015, please contact the TaxDesk on 0845 4900 509 and ask for Vaughn Chown.