Do you sell ebooks direct to consumers or non VAT registered entities?
Are any of these consumers outside the UK but within Europe?
If you answer Yes to the above, you need to be aware of changes in EU VAT legislation coming into effect on 1 January 2015.
To help guide you through the changes we have compiled a list of commonly asked questions we have been receiving:
What is changing?
Legislation comes into force which changes the “place of supply” of these services. Currently this is listed where the selling business is situated (so if you are a business in the UK the place of supply for all your sales is the UK), however from 1 January 2015 for digital services to consumers this changes to where the consumer is based. This means that the VAT applied to these services will be determined by which country the customer is based in.
A non VAT registered individual in Spain downloads an eBook from your website. From 1 January 2015 you will need to charge this customer VAT at the rate applicable in Spain, report this on a Spanish VAT return and pay the VAT across to the Spanish authorities.
What types of service are included?
A full definition of the services included can be found here
But I’m only a small business and below the UK VAT threshold, will this affect me?
Unfortunately yes it will, there is no minimum threshold for these EU VAT requirements, every sale no matter how small needs to be charged the correct amount of VAT and reported in the correct country. Your first sale to a European country after 1 January 2015 will trigger the start of your reporting requirements for EU VAT. This legislation covers the whole of Europe and some countries do not have a VAT registration threshold so limits have been set to nil to comply across the board.
What information do I need to collect?
You will need to review your system to ensure you are collecting the following information:
1. Customer location
You will need to identify the location of each customer and maintain a record of this information. To do this you need to collect two of the following (and ensure they both confirm the same location):
SIM card country code
any other appropriate information confirming address
2. EU VAT registration number
For all EU customers, you will need to identify if they are VAT registered in their country by obtaining their VAT registration number. Any EU VAT registered customers are outside the scope of these requirements and will not need EU VAT adding or reporting. UK VAT registered customers would continue to report these on their EC sales lists.
If you cannot obtain a EU VAT number then the sale will need VAT adding at the rate applicable in the customer’s country and the sale will need reporting and VAT paying to the local authorities in that country.
Do I need to supply these customers with VAT receipts and if so what information do I need to include?
Reporting requirements differ between countries but it is expected that a “simplified” VAT invoice, showing the VAT charged and your VAT registration number will be required. This is not currently confirmed.
I offer training over webinar/Skype, is this included?
No, if the service is live with a presenter it is treated as a supply of training/education and so excluded from these rules.
However if the training is recorded or automated with no live presenter then it would be classed as a digital service under these EU VAT rules.
I sell apps via an app store, will I be affected?
VAT is due by reference to who your customer is, so in this case you will need to review the terms of the contract with each platform you use to check if you are selling to the app store or the end consumer.
If it is the case that you sell your app to the app store, who in turn sells the app onto the consumer, your part of the sale would be business to business, you would need to collect their VAT registration number and the transaction would be outside of these requirements. In this situation it would be the app store who would be required to report the EU VAT on sales to consumers.
A lot of the app stores are moving along these lines, Apple trade this way and Google Play have updated their terms inline as shown here
However some platforms act as agents taking a commission from the app sales, in this situation you would need to account for the VAT to the EU customers.
I sell eBooks via Amazon will I be affected?
The present situation is that Amazon deals with the end customers and deals with the VAT reporting.
[Triskele edit: Here you can find the detail of how the changes will be implemented at Amazon, the conversion of prices from VAT-exclusive to VAT-inclusive, the effect of pricing and royalty calculations, and how to check these changes to ensure your royalty rates.]
If you use other platforms you will need to refer to your agreements and the guidance from the platform provider.
How and where do I report?
You need to account for VAT in the country the customer is located, using the VAT rates applicable to that country. A list of these rates can be found here
This can be reported in two ways:
1. Registering for VAT in each applicable country and filing VAT returns in line with their legislation;
2. UK VAT registered businesses have the option to file returns via HMRC using the “Mini One Stop Shop” – MOSS
The MOSS service will allow you to enter the sales per country, calculate the applicable VAT due, send the reports to the required authorities and collect the payment from you for distribution.
Agent will be able to file EU VAT returns on your behalf using the MOSS system, however the registration for MOSS needs to be done by you. You need to register separately for MOSS: it is not included in your UK VAT registration.
The return are due for the quarters ended March, June, September and December.
Returns and payments are due 20 days after the end of a quarter.
To use MOSS you need to be registered for VAT in the UK and so will need to charge VAT on all UK sales. If you are not registered at present you will need to assess whether this will be beneficial for your business, an accountant will be able to talk you through the pros and cons. Update on this! HMRC have indicated that businesses may be able to “split” their sales separating out the EU digital services for the purposes of this VAT registration. The details are still being outlined but it would mean that the registration would apply to only the EU set of sales and UK sales would be remain outside of UK VAT. This would allow small businesses to use MOSS and only require them to register the business for UK VAT when the UK VAT threshold is met. When firm guidance is available we will update this matter.
How long will I need to maintain all the information?
You will need to keep the records for 10 years to comply with EU regulation. This is taken as 10 years from 31 December of the year during which the transaction took place.
This all sounds very complicated and costly for the amount of EU sales I have, can I avoid it?
The only way to remove yourself from these requirements is to stop all digital service sales to EU customers. You will need to assess whether the amount of sales (or potential sales) is worth the additional reporting requirements.
How do you do this? Well I’m not a tech expert by any means but Paypal and developers for Plugins for sites such as WordPress are coming up with solutions. It may be the case that EU digital baskets can be rejected at checkouts (and potentially offered a postal service). But it is a case of keeping your eyes out for a wave of solutions on the market.
So I’m definitely going to be inside these requirements, where do I start?
To get yourself prepared for the 1 January 2015 start date you need to review your systems and make the necessary changes to ensure:
1 You are recording the location of each customer;
2. You are recording (where applicable) customers’ EU VAT numbers;
3. You have made a list of the applicable countries and their VAT rates;
4. You have either a) registered for VAT in each applicable country and made a note of the reporting deadlines or b) you have registered with HMRC for MOSS (this can be done here);
5. If you are using an agent(s) to file EU or MOSS VAT returns on your behalf you have the appropriate engagements in place in advance of filing deadlines.
Full guidance on the changes and EU requirements can be found here and results from a HMRC Q&A session can be found here
Professional bodies across the UK have been appealing for the simplification of these requirements for small businesses for some time, however it looks increasingly unlikely that this is going to happen before 1 January 2015. It adds an increasing amount of administration on small businesses, going against the tax simplification policy the UK authorities have been striving to achieve. We will of course continue to monitor the situation and if the requirements do change we will be reporting back.
If you have any questions on the above or any other areas of accounting or tax, or would like assistance in this area please contact us at firstname.lastname@example.org
Applause Accountancy Services Limited takes every care in preparing material to ensure that the content is accurate and up to date. However, no responsibility for loss for anyone acting from or refraining from acting as a result of this information can be accepted by Applause Accountancy Services Limited. http://www.applauseaccountancy.co.uk/