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New EU Regulations On Digital Products and Services

December 2014

New EU Regulations

On 1st January 2015, changes will be made to the European Union (EU) VAT place of supply services rules, involving business to consumer supplies of digital services (broadcasting, telecommunications and e-services). From this date, the place of taxation of these digital services will be determined by the location of the customer who receives the service, rather than the location of the supplier. According to HMRC these changes could affect 34,000 UK SMEs. Opinions are divided as to whether or not the new changes will be a help, or a hindrance to small businesses.

A new online service, the VAT Mini One Stop Shop (MOSS) is being introduced so that suppliers of digital services do not have to register in every EU member state in which they have customers. Businesses can register to use VAT MOSS from 20th October 2014 and the online service will be available to use from 1st January 2015. [source: HMRC]

In order to remain compliant, businesses that choose to trade in EU countries will be required to submit a single calendar quarterly return, with the relevant information sent to each member state that the business traded in. The latter stage is undertaken by HMRC so businesses are not required to send out information to multiple destinations.

Experts forecast that this will force smaller UK businesses to stop trading in EU countries as it will not be financially worthwhile to do so. However HMRC have stated that they found most micro-businesses who export digital products and services do so through a third-party such as the App Store or Google Play. Distributing their products this way will leave these businesses unaffected as it is the responsibility of the third party to account for the VAT.

To discuss this further and to find out how it affects you, contact our VAT expert David Fiddy at david.fiddy@astonshaw.co.uk

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