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EU digital services VAT threshold

New EU VAT threshold for B2C digital services from 2019

Elizabeth Wilson 20 September 2018 No comments

HMRC has launched a technical consultation on draft legislation covering two changes to the VAT treatment of business to consumer (B2C) supplies of digital services which were agreed by all EU member states in December 2017.

The measures are being introduced to ease the administrative burden on businesses selling digital services across the EU, and to allow access to the MOSS scheme by certain non-EU businesses currently excluded from it.

Background

Following a change to the VAT rules in 2015, businesses selling digital services across the EU are required to account for VAT in each member state where sales are made. With no threshold in place, VAT is currently due on all such sales.

The VAT Mini One Stop Shop (MOSS) scheme is an online service that was introduced to simplify the administration of the VAT system for businesses selling digital sales to consumers across the EU. It allows businesses to account for the VAT due throughout the EU on these types of supplies through a single return in their home country, avoiding the need to register in every EU member state where sales are made.

The new measures are being introduced following an assessment of the scheme which identified a number of improvements.

The Introduction of €10k (£8,818) VAT threshold for B2C digital services

The first change will introduce a new €10,000 (£8,818) threshold for total supplies of digital services to consumers in the EU in a calendar year.

As a result, businesses will be subject only to the VAT rules of their home country if their relevant sales across the EU in a year (and the preceding year) fall below this threshold.  UK VAT registered businesses with digital sales below the threshold will therefore charge UK VAT from 1 January 2019 and no longer be required to account for EU VAT based on where their customers belong.

If a business’s total taxable turnover is below the UK VAT registration threshold they will be able to de-register from VAT.

Businesses with supplies below the threshold can however elect to continue to apply the current rules.

Use of MOSS scheme by non-EU VAT-registered businesses

The second change is to allow non-EU businesses that are registered for VAT for other purposes, to use the mini one stop shop (MOSS) scheme to account for VAT on sales of digital services to consumers in EU member states. This group are currently excluded from using MOSS.

Impact on UK businesses

HMRC has published an accompanying draft tax information and impact note on the potential effects of the changes, in which only a negligible impact on the Treasury and no significant economic impact is anticipated.

The greatest impact is expected to be on the 1,200 UK businesses falling below the €10,000 threshold, since all their supplies of digital services (including those to other EU member states) will now be treated as though they were made in the UK. This means that they will no longer be required to register for VAT in the UK if their total taxable turnover is below the UK VAT registration threshold.

These businesses will benefit from a reduction in administrative effort and costs, as a result of no longer being required to register for VAT, submit VAT returns and report quarterly through MOSS.

The consultation closes on 8th October, with the legislation taking effect from 1 January 2019.

If you believe you may be impacted by the changes or would like assistance in de-registering from VAT, please get in touch with us.