Dot Bekker - Entrepreneur Strategist

Dot Bekker works with Entrepreneurs to build, develop and grow their business success with proven strategies.

Are you prepared for the new VAT/TVA rules?

New EU VAT rules from 1st January 2015

From January 1st 2015, businesses who sell digital products and services to European customers should begin charging VAT at the rate of VAT in the country in which the customer is based, not their own.

These new rules apply to the sale of most digital products and services, and include both web hosting and domain names, as well as software supplied electronically.

Currently, if you sell to a consumer inside the EU then VAT is charged at the rate of the country where you - the seller - are based. As from January 1st 2015, VAT will be charged at the rate applicable in the EU country the customer is located.

For example, if you for example a UK selling to a customer in Italy will be charged the UK VAT rate of 20%. However, as of January 1st, they will need to charge the Italian VAT rate of 22%. This money then goes to the Italian government instead of the British one.

As before, if the supply is to a business that is within the EU that has a VAT registration number, but outside your own country, then the customer must account for the tax through the reverse charge mechanism. Many software options and ecommerce products support this with an EU Tax option or individual country rules.

What is the point of all this you might be asking? Well, according to Andrew Webb, Senior VAT Policy Manager at HM Revenue & Customs, it is the "final change in a series of changes to embed the idea that with consumption taxes, such as VAT, the place where the tax is paid is the place where the service or goods is enjoyed, consumed or used".

Or, in other words, it's trying to make it fairer for everyone by creating a level playing field and removing the current competitive advantage gained by companies based in an EU country with a lower rate of VAT.

So what will you need to do? The primary thing is update your tax rules on your website, if you are using an ecommerce online solution. Check with your Web software provider or WebMaster if you need assistance.

The other big change will be the way in which you need to report the VAT you have collected. To avoid having to register and pay VAT in every member state where you have customers, a special scheme has been introduced in the UK called the Mini One Stop Shop (MOSS). MOSS haven't provided access to the reporting system yet, and so we can't say at this stage exactly what requirements this has, but we are expecting to learn more soon and will be providing the appropriate reporting tools in due course. Check with your local tax authority on local initiatives.

Be sure you also check PayPal Subscriptions, this will require manual intervention in order to ensure you are paying the correct new amount. If you know this will affect you, we would recommend cancelling and creating a new PayPal subscription from the next invoice issue to avoid any overpayments or interuptions in service, be sure to alert your customers to make these changes.

As ever, we are not tax experts, and would strongly recommend anybody with any questions or concerns regarding the new rules seek appropriate advice from your local Tax and VAT Authority. There is however a huge wealth of information available out there on the internet about these changes. Below I highlight some of the most useful links I've found.

EU Commission Information
http://ec.europa.eu/taxation_customs/taxation/vat/how_vat_works/telecom/index_en.htm

UK HMRC Guidance on Supplying Digital Services
https://www.gov.uk/government/publications/vat-supplying-digital-services-to-private-consumers

How to Register for and Use the VAT Mini One Stop Shop (MOSS)
https://www.gov.uk/register-and-use-the-vat-mini-one-stop-shop

VAT Rates by Country
http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/how_vat_works/rates/vat_rates_en.pdf

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Wednesday, 26 September 2018