VAT rules for supplies of digital services to consumers

If you’re a business selling digital services to private consumers, then you need to be familiar with the VAT ‘place of supply’ rules.

Determining the place of supply and taxation

The place of supply rules act as a common framework in terms of VAT, to help businesses decide in which region transactions should be subject to tax.

For instance, for cross-border digital services supplies to private consumers, you must check:

• Your consumer’s location.
• Ensure that it’s a digital service; if not, the general place of supply of services rules automatically apply.
• Check to see if your consumer is a business (B2B) or private one (B2C).
• If you’re running a UK business but the supply is not made specifically in the UK, you must check the rules in your consumer’s country, since you may have to register VAT or its equivalent in the same country.

Digital services: Place of supply (UK vs. EU)

If you are making supplies of digital services to consumers in the UK, the supplies are subject to UK VAT. But if they are outside the UK, then those services are not liable to UK VAT.

You need to register for UK VAT if your supplies are subject to UK VAT and you are based outside the UK.

If you are making supplies of digital services to consumers in the EU, then you must either:

• Register for the Non-Union VAT MOSS scheme in any of the EU member state, or;
• Register for VAT in each one of the EU member states where you are supplying digital services to your consumers.

How to define digital services?

These may be defined according to their respective category. For example:

Radio and TV broadcasting services

• The supply of audio only and audio-visual content to be heard or viewed simultaneously by the general public at large, as per a fixed programme schedule.
• Live streaming if the broadcast is at the same time as the radio/TV transmission.

Telecommunications services

This refers to transmission of signals via optical, electromagnetic, traditional wire or other system, and includes:

• Fixed and mobile telephone services for the transmission and switching of data, voice and video. This includes videophone services.
• Telephone services provided over the internet, including VoIP.
• Caller ID, call forwarding, call waiting, voicemail, 3-way calling and other miscellaneous call management services.
• Access to the internet
• Paging services.

This does not cover services provided over the telephone – e.g. such as call centre helpdesks.

Electronically supplied services

This category applies to e-services only which you supply electronically and include:

• Supplies of text or images, such as photos, e-books, screensavers, digitised documents (PDF).
• Supplies of films, music and games, including online games of chance or other games, as well as programmes on demand.
• Online magazines.
• Websites and web hosting services.
• Software and software updates.
• Remote maintenance of any programmes and equipment supplied.
• Advertising space online.

Some services are not affected by VAT rules for supplies of digital services to consumers. These include:

• Goods which are supplied through electronic order processing.
• Newsletters, newspapers, physical books and journals.
• Financial consultants and lawyers advising clients through email.
• Educational, training or professional courses where the content is electronically delivered by the instructor/teacher.
• Physical repair services for computer equipment.
• Advertising services via newspapers, TV or posters.
• Booking services/tickets to entertainment events, car hire or hotel accommodation.

How do I know if my customer is a business or private consumer?

If you’re supplying digital services to a consumer who does not provide a VAT registration number, then you must:

• Treat it as a B2C supply.
• Charge the VAT (or whatever applies to the same extent) according to the consumer’s region.

The subject of VAT rules for supplies of digital services to consumer is a very expansive and broad-ranging one. Our friendly and approachable Accountants in Slough, Adam Accountancy can advise you personally on the ones that apply to you.

Other further details from HMRC can be found here.