Changes to the place of supply rules for broadcasting, telecommunications and electronic services from January 2015
The general VAT rules regarding the place of supply of broadcasting, telecommunications and e-services will change on 1 January 2015.
At present, there is a distinction between B2B (Business to Business) services and B2C (Business to Consumer) services supplied to customers belonging in other EU Members States.
A B2B service is regarded as being supplied where the customer belongs, so if the customer belongs in another EU country, the service is outside the scope of UK VAT and the customer takes on the obligation to account for VAT in their country. They do this through their own VAT returns using what is known as a reverse charge.
A B2C service is currently regarded as being supplied where the supplier belongs, so if a UK VAT registered entity supplies services to a private individual belonging in a different EU country, UK VAT should be charged.
There is no change regarding B2B supplies, but there is a fundamental change to B2C supplies of broadcasting, telecommunications and e-services, namely that the place of supply will become the place where the customer belongs.
However, unlike a B2B supply, the customer will not be able to account for VAT using a reverse charge because a private individual will not be VAT registered. Under current rules that would mean that a UK supplier of such services would be obliged to register for VAT in their customer’s EU country.
To avoid this burden, a VAT Mini One Stop Shop (MOSS) online service is being introduced. If the business registers for MOSS in the UK, the business will be required to submit a VAT MOSS return listing the total supplies to private individuals for each member state and the amount of VAT chargeable at the standard or reduced VAT rates. This information will be provided on the European Commission’s DG TAXUD website.
Amounts should be entered in the currency used in the customer’s country using the exchange rates published by the European Central Bank (ECB). Payment will be made to HMRC, just as with your normal VAT return, and HMRC will send an electronic copy of the appropriate part of your VAT MOSS return, and the related VAT payment, to each relevant Member State's tax authority on your behalf.
It is clear that in order to be able to complete this return it will become vital that the supplier establishes the location of the consumer. To support your decision you should keep three non-contradictory pieces of evidence. These could include the consumer's billing address, bank details, telephone numbers, or internet protocol (IP) address.
The UK is unique in Europe in having a high registration threshold. In most other countries there is, at best, a limit of only a few thousand pounds, so an unregistered business might find itself liable to register for VAT in other countries unless it avails itself of the MOSS.
When a Non-EU businesses makes B2C supplies to EU consumers and has a fixed establishment within EU it can also use this facility. Where such a business has no such establishment there is a similar provision which allows them to register in any Member State and use what is referred to as a ‘Non-Union’ VAT MOSS.
Records will be required to be kept for 10 years from the 31 December of the year when the transaction was carried out. Although the change only applies from 1 January 2015, businesses will be able to register to use it from October 2014.
The difficulty for many businesses will lie in identifying which customers are private individuals, and in establishing where they belong, and businesses would be advised to start ensuring their accounting packages are capable of providing this data now.
If you think you may be affected by these changes please contact our VAT Partner, Phil Salmon.