December 23, 2014

New EU VAT Law For Selling Digital Products

Clients, Online Sales, The Law

An estimated 34,000 SME’s will be affected by new EU laws that changes the way VAT is applied to the sales of digital products. Even if your sales are less than the current VAT threshold of £81,000 per year, these new laws could affect your business.

From 1 January 2015, sales of digital products will have VAT applied in the country where the products are bought rather then the country where they are sold. This will apply to any digital product from ebooks and videos to digital frameworks and online courses. 

It is widely believed that the new laws have been created to tackle tax avoidance from huge multinationals such as Amazon, but small businesses will be affected too.

Many businesses in the UK that sell less than £81,000 worth of products a year are exempt from VAT. However from January they will have to pay VAT when selling digital products to customers in other countries in the EU, regardless of how low their turnover is.

This will be paid to the country they are selling the product to. There are two options for how this can be done. You could register for VAT with the countries you are selling to but depending on how many these are, this could be a laborious task. There are 28 countries in the EU with some 75 different VAT rates.

The other option is to register for HMRC’s VAT MOSS service (Mini One Stop Shop scheme). This option requires businesses to submit a single calendar quarterly return and payment to HMRC which then sends out the relevant information and payment to each of the countries you have sold to.

The internet is awash with protests and petitions against these new laws. Many businesses are worried about the financial repercussions but the best suggestion we can give to our clients is to do their research and be informed about these new laws and how they might impact your business. Here are a few links you might find helpful.

Helpful Links

HMRC MOSS VAT Service – https://www.gov.uk/register-and-use-the-vat-mini-one-stop-shop

Gov.uk HMRC MOSS Guidance – https://www.gov.uk/government/publications/revenue-and-cus…

Gov.uk Selling Digital Products in the EU – https://www.gov.uk/government/publications/vat-supply…

EU FAQ – http://ec.europa.eu/taxation_customs/taxation/vat/traders/e-commerce/article_1610_en.htm

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