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Important Changes to VAT on Digital Services

If you sell digital services such as music or software downloads, e-books or online videos then from 1st January 2015 if you are selling these internationally you will have to determine whether your customers are businesses or not and where they are based.

If your international sale is to  private individuals and not a business from 1st January 2015 you will have to charge customers the VAT of the country where they are located if that is in the EU. The VAT threshold for selling into other EU countries is zero and you will therefore have to register for VAT in that customer’s country.

Here is the definition of digital services provided by HMRC

“In high level terms digital supplies are defined as follows:

  • Broadcasting includes the supply of television or radio programs to a schedule by the person that has editorial control of those programmes.
  • Telecommunications includes the service of sending or receiving signals by wire, radio, optical or other systems. It includes fixed and mobile telephony, fax and connection to the internet.
  • E- services include: video on demand, downloaded applications (or ‘apps’), music downloads gaming, e- books, anti- virus software and on- line auctions.

It is acknowledged that this is a rapidly evolving sector. As such, the above list is illustrative an not exhaustive. It is intended to provide a good set of examples of the types of service that the legislation covers, rather than a detailed and specific list of every service covered”


If you are selling via a large online store than that store should be sorting out the VAT however if you are selling directly then you need to consider the impact of these changes on your business and collation of the data you will need.

1st January is some time away so now is the time to start thinking about what systems you need to change or put in place. Speak with your web developer and IT department and contact an accountant.

The easiest way to do this will be through the HMRC website under a system called VAT-MOSS. This system goes live from October 2014, and it will allow you to account for VAT in all the EU countries you sell services to.

However, in order to use VAT-MOSS you must first be registered for VAT in the UK. If you are not already VAT registered, perhaps because your turnover does not exceed the UK VAT threshold of £81,000, you need to pick one of these options:
1. register for VAT in the UK;
2. stop selling digital services to non-business customers outside the UK; or
3. sell only through online stores or other businesses.



avatar Name: Alexandra Eager
About: Alex has worked as a Financial Controller and Finance Director for many years for a variety of companies across a range of industries but more recently she has moved away from accounting working for an internet marketing agency as Finance and Operations director, primarily overseeing the finance functions and search engine optimisation (SEO) for clients. Follow Alex on G+ and on Twitter @Alex_BusDirUK
Alex runs her own company with two fellow owners developing a suite of e-commerce web sites and promoting them directly. “I found that SEO and finance were quite compatible both needing an eye for detail, research and analysis as well keeping up with new developments and changes.”

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