From 1st January 2015, changes in the European Union (EU) VAT rules will require any sales of digital services or products to include VAT at the point of consumption for all B2C transactions. The supplier will be required to pay VAT to the consumer’s country at their VAT rate. For example, a UK retailer would charge the French VAT rate if a consumer's country of residence is France, and pay the French government.
Retailers are required to charge VAT on Business to Consumer (B2C) transactions at the applicable rates on all sales of digital services or products. Prior to January 2015, the VAT rate charged was based on the point of supply, for example a UK retailer would charge VAT based on the UK VAT rate and pay the UK government this VAT regardless of where the sale was made.
This change to legislation will only affect sellers whose customers purchase digital products or services within the EU. If, as a Create user, you have the 'Downloadable Products' facility enabled on your account and are actively selling digital products then you must begin observing these new laws.
See the VAT Flowchart from HM Revenue and Customs (HMRC) for more details:
HMRC has developed a Mini One Stop Shop (MOSS) service for sellers of digital services to simplify the process – this allows you to submit a quarterly MOSS VAT return and they’ll do the rest for you. See the two guides linked below for more information.
Suppliers will need a valid UK VAT registration number to use the MOSS system but will not need to account for or pay VAT on sales to UK customers if your UK taxable turnover is below the UK VAT registration threshold (currently £81,000). As such, you can use this system to account for the VAT due in other EU member states. Alternatively you can register for VAT in the relevant EU countries manually.
There has been an outcry from small businesses across the web and you may like to consider signing the online petitions aimed at suspending the introduction of the new EU regulations for micro businesses and sole traders. Find out more and sign the petitions here and here.
Available from 1st January 2015, if you use the 'Downloadable Products' facility you'll have access to an additional feature in your account to calculate the customer’s VAT rate based upon their EU country, this setting can simply be ‘switched on’ within your downloadable features section.
This feature will automatically calculate the required VAT rate according to the Country the consumer resides in, meaning the seller will be able to comply with all EU legislative requirements with ease.
Find out how to enable the 'EU Digital Services VAT' tool in your Create account here.
If you are concerned about what the changes mean for your business we recommend discussing this with your Financial Adviser or Accountant as they will be able to fully advise you.