From 1 January 2015, all businesses that sell 'e-services' to non-business customers in other member states are required to account for VAT in the EU country where their customer downloads the product. There are no de minimis limits. UK businesses caught by the new rules must either register for VAT in each EU country in which their customer downloads the product or they can opt to account for VAT through a special VAT registration known as the 'Mini-One-Stop-Shop' or MOSS'.

While MOSS avoids multiple EU VAT registrations, it means that 'micro-businesses' (those with UK sales below the UK VAT registration threshold, currently £81,000) must become UK VAT registered to use MOSS for overseas sales. Following consultation, HMRC has recently confirmed that if a 'micro-business' has UK turnover below the UK VAT registration threshold, but is registered for VAT in order to use MOSS for its overseas sales, it does not have to account for VAT on its UK sales. Until HMRC clarified the position, these businesses were concerned that they would have to start charging VAT on UK sales even though they were below the registration threshold.

One further relaxation for micro-businesses registering for MOSS was announced by HMRC on 29 December 2014. During a period of six months to 30 June 2015, these businesses only need one piece of evidence, as opposed to two, as to the customer's location which can be obtained from information provided by the payment service provider. More details are set out in HMRC's guidance. Many businesses will sell e-products via an online marketplace or platform where the marketplace or platform will have the responsibility to account for VAT on the final sale to the consumer. Individual businesses will need to check whether or not they are required to deal with their own EU VAT reporting.

If you would like to discuss how the new rules on digital downloads will affect your business, contact one of the VAT team.

Our view

The 2015 VAT changes represent a major VAT compliance shift for all UK businesses selling download products to non-business, EU customers. For those businesses required to declare and pay VAT in other EU countries, the MOSS facility is likely to ease the administrative burden and so the relaxations for UK micro-businesses are most welcome.

We have taken great care to ensure the accuracy of this newsletter. However, the newsletter is written in general terms and you are strongly recommended to seek specific advice before taking any action based on the information it contains. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. © Smith & Williamson Holdings Limited 2015. code: NTD237 exp: 30/06/2015