VAT on Digital Services

on December 1, 2021

VAT position on supplies of digital services

Digital services are defined by HMRC as Electronically supplied services, Telecommunication services, and Radio and television broadcasting services.

‘Electronically supplied’ is further explained as e-services that are automatically delivered over the internet, or an electronic network, where there’s minimal or no human intervention.  HMRC has a further detailed list of services for clarification which can be found by clicking the this link

Place of supply will determine the next key element to determine the VAT position on digital services. the place of supply of electronically supplied digital services is where the customer belongs, whether that is a business (business to business (B2B)) or a consumer (business to consumer (B2C)).

Due to the nature of the service and how the place of supply is determined the reporting and calculation of the VAT can be challenging on digital service.

Where the place of supply is in UK

The standard UK VAT would apply, and all VAT collected would be reported to HMRC through your MTD compliant VAT software.

Where the place of supply is in EU

EU introduced the VAT OSS scheme which replaces the need to register in each EU country where the VAT thresholds are reached. Once registered you would charge the appropriate VAT rate based on the supply location and account for it under the OSS scheme monthly. If you are based in the UK, you will need to appoint an EU agent to do this for you.  For UK VAT you would report these sales as zero rated as its outside the scope of VAT for UK.

Selling to the rest of the World

For UK Based providers this will continue to be reported as zero-rated sales to HMRC on your VAT return. Most countries in the world have a threshold at which point you will be required to register for VAT, collect the correct VAT and report it to the relevant authority of the place of supply. This can be time-consuming, expensive, and complex to manage so you would need to appoint tax agents in each county.

Selling through a marketplace

Where digital services are sold through a marketplace it simplifies the process significantly as the supply is treated as being to and from the platform.

If you are considering selling digital services or any other products or services across the border and are worried about the VAT implication and report, please give us a ring. We work with a range of tax agents across all borders to assist our clients to simplify and reporting VAT.

Filed under  Blog • Tax 

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