VAT Rules Change For Supplies of Electronic Services
The VAT place of supply rules for supplies of electronic services are to change from 1 January 2015. The change affects business to customer (B2C) supplies within the EU of E-services. Affected UK businesses will need to register for VAT in each EU member state in which they supply such services or they can register for the Mini One Stop Shop (MOSS) system. This will enable an affected business to submit one quarterly return and payment to HMRC to account for the overseas VAT charged to its customers in all other EU member states.
What services are included?
E-services generally encompass the provision of information without the need for human intervention in the process. This includes not only telecommunications services and broadcasting services but also:
- the supply of digitised products generally, including software and changes to or upgrades of software;
- services providing or supporting a business or personal presence on an electronic network such as a website or a webpage;
- services automatically generated from a computer via the Internet or an electronic network, in response to specific data input by the recipient;
- Internet Service Packages (ISP) of information in which the telecommunications component forms an ancillary and subordinate part (i.e. packages going beyond mere Internet access and including other elements such as content pages giving access to news, weather or travel reports; playgrounds; website hosting; access to online debates etc.);
- automated, online and distance maintenance of programmes;
- remote systems administration;
- online data warehousing where specific data is stored and retrieved electronically;
- online supply of on-demand disc space.
- accessing or downloading software (including procurement/accountancy programmes and anti-virus software) plus updates;
- software to block banner adverts showing, otherwise known as bannerblockers;
- download drivers, such as software that interfaces computers with peripheral equipment (such as printers);
- online automated installation of filters on websites;
- online automated installation of firewalls.
- accessing or downloading desktop themes;
- accessing or downloading photographic or pictorial images or screensavers;
- the digitised content of books and other electronic publications;
- subscription to online newspapers and journals;
- weblogs and website statistics;
- online news, traffic information and weather reports;
- online information generated automatically by software from specific data input by the customer, such as legal and financial data, (in particular such data as continually updated stock market data, in real time);
- the provision of advertising space including banner ads on a website/web page;
- use of search engines and Internet directories.
- accessing or downloading of music on to computers and mobile phones;
- accessing or downloading of jingles, excerpts, ringtones, or other sounds;
- accessing or downloading of films;
- downloading of games on to computers and mobile phones.
What records are required?
For most supplies, a business will be required to obtain and to keep two pieces of non-contradictory evidence from a specified list (eg customer’s billing address, IP address, bank details, SIM card country code) in order to ensure that the EU member state is correctly identified for each customer.
Where the supplier knows the supply of the service is via a fixed land line, the business need take no further action to determine the place of the supply.
If a consumer has a mobile telephone with a SIM registered in the UK, but that person is currently travelling elsewhere in the EU when they “consume” the electronic service, the place of consumption is the UK because the “permanent address” of the SIM card is decisive.
How will the MOSS system work?
The UK MOSS system will operate in the same way as the French and Spanish systems, and automatically calculate a “VAT payable” amount once the business has entered the product value and the appropriate Member State of Consumption VAT rate on the MOSS VAT Return. HMRC have not yet published any technical details of the MOSS VAT return as it is still under development within HMRC.
The UK MOSS VAT system will be accessible via HMRC Online Services and data will be entered via a web front end, which will conform to the HMRC digital services standards. There is no facility for direct third party submissions. There will be the ability to upload returns from a spreadsheet into HMRC online. This aspect of the system is currently in development and details will be available once the design has been approved.
For each declaration of sales to a Member State of Consumption, HMRC expect the following information to be supplied:
- Member State of Consumption
- VAT rate type (Standard or Reduced)
- VAT rate in Member State (%)
- Total net value of supplies (£)
Once the above information has been uploaded into the new MOSS online service, the system will calculate and display back to the business the VAT amount payable for each Member State and provide a grand total payable to HMRC. Payment must be made using current payment arrangements – payment by credit card or Pay Pal is not allowed.
Currencies must be converted using the ECB rate published on the last day of the reporting period.
In relation to the calculation of tax, the MOSS return must be completed and submitted within 20 days of the relevant quarter end and payment of the VAT also handed over within the 20 day limit.
MOSS records must be kept by the business for a period of 10 years from 31 December of the year during which the transaction was carried out.
In the UK agents will not be allowed to register clients onto the MOSS system and so businesses must take on this responsibility. However, once a business has registered for MOSS, it will be able to arrange for an agent to undertake all the other agency functions such as completing and submitting MOSS VAT returns and making MOSS payments.
The EU MOSS VAT number will be the same as the local VAT number, but the EU MOSS VAT return will be different to the standard VAT return. As with existing VAT registrations, it will be possible for MOSS VAT returns to be dealt with on a group basis for businesses under common ownership.
Potential Areas of Difficulty
The supply of live training webinars are not within the definition of E-services but recorded webinars are classed as E-services.
The issue of a Single Purpose Voucher (“SPV”) that can be redeemed for digital services represents an E-service and is deemed to be provided at the time the voucher is issued.
The issue of Multi-Purpose Vouchers (ie ones that may be redeemed for E-services or goods or non E-services) will cause problems and the VAT rules of the customer’s home country will need to be applied.
In relation to the purchase of an E-book as a gift the contract for the purchase of the product is between the person ordering and paying, and the supplier and so the supplier’s customer for VAT purposes is the person ordering and paying.
Credit notes in respect of transactions that occurred before a business signs up for MOSS will be subject to the previous set of rules, even if they occur after the MOSS start date.
There are no de-minimis rules in the MOSS VAT scheme, so even low value sales must be declared and VAT paid.
Where goods are provided together with an E-service, such as an electronic copy or access to website, it cannot be automatically assumed that there are separate supplies. It will depend very much on the specific circumstances. The judgment in the “Card Protection Plan case” says that items that are incidental or ancillary will follow the treatment of the predominant element. This does not however mean that reduced rates, including zero rates, can be extended to cover items which if sold separately would be standard rated. Where a reduced rate item predominates in a supply it is possible to have a single supply with more than one rate of VAT as there is no legal basis to extend the reduced rates. However, HMRC accept that there will be supplies where the parts are distinct and will need to be accounted for individually with their own liability and place of supply.
The business making the supply will be required to comply with the VAT invoicing rules of the Member State where the supply is made and that will be the customer’s Member State. Although most Member States will not require an invoice for a B2C supply, one or two do require that a business issue a simplified invoice. To ensure that businesses know what each Member States invoicing requirements are, an EU VAT Web Portal is being developed where this, and other Member State VAT requirements, will be published.
When a return needs amending the current version of the return is presented to the business, and then the lines that need amending can be changed. Once the changes are done the return is resubmitted in its entirety. If a repayment is due there may be a delay if the alteration has to be approved by the Member State of Consumption before the UK authorities make the refund.
We will post further updates regarding the above matters as announcements are made, in the meantime should you need to discuss any of the above, please do not hesitate to contact us.
Harbour Key Limited
+44 (0) 1242 244115
+44 (0) 1242 241747