It is essential that you act now in order to be ready for VAT MOSS.
Given the new VAT legislation has potential major impact on tech startups selling digital services across Europe we thought we would ask our tech startup accountancy partner Clement Keys to give us the low down.
Important changes to the place of supply rules relating to electronically provided services are taking place with effect from 1 January 2015.
Where a business provides “digital services” to private individuals in other member states, the business is currently required to charge UK VAT, regardless of the location of the customer. The term “digital” services covers a variety of products, including (but not limited to) the transmission, emission or reception of signals, writing, images or sounds by wire, radio or other electronic systems. In essence this means telecommunications, broadcasting, internet services and the like, but can also apply to services that rely upon the internet for delivery, such as web hosting, music and other downloads as well as electronic advertising.
With effect from 1 January 2015, the place of supply of such services will shift to the country of the customer. This means businesses that provide such services will be required to account for local VAT in each of the countries in which it has non business customers. Simplified registration and compliance Thankfully, there will be no requirement to register for VAT and file returns in each individual country. Instead, UK businesses can register and use the ‘Union’ VAT MOSS online service. Using this system UK businesses can submit a single return and payment covering all non-domestic EU sales to HMRC. HMRC will then distribute the relevant information and funds to each relevant Member State’s tax authority on behalf of the business.
I am not VAT registered so it doesn’t apply
Unfortunately not. If you sell just one product to a customer in an EU country you are liable to pay the VAT to that country. In order to sell that one product to the EU country you will need to register for VAT and get a VAT Number. So the revenue threshold of £81,000 before registering doesn’t apply if you are selling to EU based customers.
However if you are registered for VAT because of VAT MOSS and you are under the £81,000 revenue threshold you don’t need to charge VAT (20%) to UK customers.
How do I prove which country my customers is from?
You need to provide two, non-conflicting forms of evidence as proof you are paying VAT to the correct member state. The options are:
- the billing address of the customer
- the Internet Protocol (IP) address of the device used by the customer
- location of the bank
- the country code of SIM card used by the customer
- the location of the customer’s fixed land line through which the service is supplied
- other commercially relevant information (for example, product coding information which electronically links the sale to a particular jurisdiction)
Tech solutions to VAT MOSS
At the moment there are not many but more will arrive. If you are using Stripe as your payment gateway then take a look at this product Quaderno
Take Action Now
If you will be affected by these changes, it is essential that you act now in order to be ready. At the very least, by 1 January 2015 you will need to;
- Establish the location and tax status of your customers
- Ensure systems are capable of adding / accounting for VAT at a variety of rates
- Ensure your contracts and pricing adequately allow for local VAT to be added (or at least that the potential amount of VAT in each country is built into margins (VAT rates can be as high as 27%).
- Ensure that all appropriate documentation is produced and retained for 10 years
- Register for VAT MOSS
How can we help?
Clement Keys’ indirect taxes team has been working with a number of tech startups in order to get them ready for the 2015 changes. Clement Keys can work with you to ensure you are equipped and ready for these important changes.
For more information contact Adam Lloyd