Cultural Enterprise Office

As of 1 January 2015, the rules for paying Value Added Tax (VAT) in the European Union (EU) when selling digital services to customers changed. VAT will now be paid at the rate that applies in the customer's country and not the supplier’s country.

The regulations apply to companies and sole traders regardless of whether they are trading above or below the UK's VAT threshold. Micro-businesses are not exempt. 

The changes affect creative businesses distributing their apps, games, e-books, knitting patterns, music downloads, television and radio programmes and films through websites and some digital stores or streaming services.

They are likely to affect you if you are selling digital services outside the UK via your own or a third party website, online platform or aggregator where you are handling the financial transaction directly with the customer.

To help businesses account for the VAT due on their sales across the 28 EU territories, HMRC have introduced the VAT Mini One Stop Shop (MOSS) scheme.

It’s important you understand how the regulations will affect you so that you comply with the new VAT obligations. So we've answered a few FAQs to help you determine if the change impacts on your business. We've also included some key links to further information.

What are digital services?

Sadly, the answer is not straightforward. HMRC define digital services as 'broadcasting, telecommunications and e-services that are electronically supplied.' There is a comprehensive list here.

Communicating by email and sending attachments does not constitute digital services.

How do I determine and evidence the countries in which my customers are based?

The country in which the customer receiving digital services is based is known as the 'place of supply'. Support with determining the place of supply is available here.

As the business supplying the digital service, you must obtain and keep two pieces of non-contradictory information to support and evidence the EU member state in which they are normally located. Examples of the type of acceptable supporting evidence can be found here.

Where can I find out more about VAT MOSS?

You can find out more about and register for the VAT Mini One Stop Shop here. 

What are the benefits of VAT MOSS?

As a supplier of digital services to EU customers, by registering to use this optional online scheme, you will not have the added administrative burden of registering for VAT in all the EU countries that you supply. However, to use and benefit from VAT MOSS, you will need to voluntarily register for VAT even if you haven't reached the UK VAT threshold.

Read our Would it benefit me to be registered for VAT? FAQ for further information. 

What happens if I exceed the VAT registration threshold?

You will need to start accounting for VAT on your UK (domestic) sales as well as EU sales. This will involve submitting regular VAT returns to HMRC. Read our Am I required to register for VAT? FAQ for further information.

Further information

• Enterprise Nation has a simple 5 steps to VAT MOSS.
  
• The UK Government website has much more comprehensive information on VAT on digital services in the EU.
• HMRC's VAT: Supplying Digital Services and The Mini One Stop Shop (MOSS) flow chart is a useful way of checking how you may be affected.
  
• Third party website, platform or aggregator's information pages, e.g. Etsy 
• Our Changes to paying VAT in the EU when selling digital services Storify.

Disclaimer: We want to keep you in the know, so we offer a wide selection of useful resources. But Cultural Enterprise Office isn’t responsible for the advice and information of external organisations in this document. So if you have any questions, please contact the specific organisation directly.