Avoid digital sales VAT mess
If you sell any sort of digital service over the internet (eg: e-books, music, photographs, software, games) you should be aware of the new digital services VAT regime that came into effect on 1 January 2015.
These VAT rules only apply if you sell digital services to private customers in other EU countries, in which case you must apply VAT at the rate due on your digital service in the country where your customer belongs. This applies to all of your digital sales to other EU countries - there is no VAT registration threshold for international sales of services.
To be frank these VAT rules are a nightmare for most small businesses. To comply you either have to register for VAT in every EU country you sell to, or register for VAT Mini One Stop Shop (VAT MOSS) in the UK and report all the international VAT charged through the HMRC website.
A better way is to avoid falling within the new VAT digital sales rules. There are two legal ways to do this:
- Sell your digital services via an online market-maker that acts as your agent and makes the sale to the consumer. The market-maker should charge the relevant amount of VAT as part of the sale price and pay you the net proceeds less its commission. Be sure to check who is legally making the sale: you or the market-maker.
- Include a significant amount of manual intervention in every digital sale initiated by a consumer in another EU country. For example set your system to block a cross border sale until a human has checked and authorised the customer’s details, or provide an individually written email to each international customer.
We can help you find a route through the VAT MOSS mess. Let’s talk about what your business needs to do.