The application of VAT to cross-border supplies has always been a notoriously tricky subject. This is particularly so for supplies of services. For example, if I have a client in France who rings me up with a query and I give them the answer over the phone, is the service I am giving supplied in the UK (where I am) or France (where the client is)? And what happens if the same client phones me on my mobile when I am on holiday in Spain?
Such conundrums have largely been resolved over the past few years and the short answer, for supplies of services to “consumers” (broadly private individuals), is that my services are supplied where I “belong”, i.e. in the UK. So, while my French client will ultimately receive a bill with UK VAT on it, it is easy to see how this general rule simplifies matters. If the place of supply of services is where the consumer belongs, my services would have been provided in France and I would possibly have to register for VAT there as well.
Unfortunately for some businesses, on 1 January 2015 changes are being made to the place of supply of services rules for VAT. The new rules will apply to services involving business to consumer (B2C) supplies of broadcasting, telecommunications and e-services (digital services). What is more, the changes will affect all businesses that supply digital services to consumers, whether or not they are currently registered for UK VAT. This is because there are no registration limits for digital service supplies made to consumers outside the UK and any business supplying such services to consumers in other EU member states will have to register for VAT in those member states. Note that the rules for business to business (B2B) supplies are not affected.
The record-keeping this will involve is pretty horrendous and there are a lot of complex new rules to identify precisely where supplies have to be taxed. Fortunately, some help is at hand. To save businesses having to register for VAT in every EU member state where they supply B2C digital services, they can opt to use the “VAT Mini One Stop Shop” online service (VAT MOSS). This will be available from 1 January 2015, but businesses can register to use it from October 2014. Using the VAT MOSS means a single calendar quarterly return can be submitted, to cover all EU digital services supplied. HMRC will then send an electronic copy of the appropriate part of the VAT MOSS return, together with the related VAT payment, to each relevant member state’s tax authority in lieu of a return by the business itself. The VAT rate to be used will be that of each member state of consumption at the time the relevant service was supplied.
Businesses making B2C digital service supplies to EU consumers that are not currently registered for VAT (because they are under the VAT registration threshold), will now need to register. If they do not, then under the new rules they will potentially have to register for VAT in every EU member state in which they supply consumers with digital services. By opting to use VAT MOSS, they will not have to do this, but those affected should be taking steps now to ensure that are familiar with the new rules and associated record-keeping requirements, as there are less than four months to go before implementation. You have been warned!
Carl Barwick – Tax Manager
Westbury Accountants and Business Advisors is an accountancy practice based in London. Westbury have been providing Accounting and Tax solutions to small and medium sized businesses since 1936. Talk to the team at Westbury on 0207 253 7272 or visit http://www.westbury.co.uk.