Are you ready for 2015’s EU VAT changes?
1st January 2015 will bring changes to the EU VAT ‘supply of service’ rules. From this date, new guidelines will be enforced for business to consumer (B2C) supplies of broadcasting, telecommunications and digital services. The new rule will have a significant impact on businesses that supply these services to non-domestic EU states.
At the moment, these businesses are subject to the rate of VAT applicable in the EU country that their business is based in. The new change in legislation means that businesses will now have to charge VAT at the same cost specified by the member state of their ‘final customer.’ For example, a business based in the UK will currently account for 20% VAT on any customer generated revenue; the new changes will mean that if a customer in Ireland buys their products or services they will now have to factor in the higher 23% VAT rate into their costs. Business to business (B2B) suppliers are unaffected by these new changes.
Companies within the ‘broadcasting, telecommunications and digital services’ bracket include:
- Those that supply television or radio programs.
- Telecommunications such as radio, mobile, optical, telephones, fax and internet connections.
- Online services including video/television on demand, apps, music downloads, games, e-books and software.
What does is mean for affected businesses?
The introduction of this change aims to provide a level playing field within these industries. The nature of these services means that international borders are not a constraint and providers within a low-rate member state have a distinct advantage over the suppliers from member states which are subject to higher VAT rates.
Each company needs to consider how to handle these upcoming changes and either adapt customer costs or allow the changes to affect the revenue of the business. It’s important to point out that it’s not all bad news; some countries may have a lower VAT rate than the member state that your company is registered to.
Businesses are encouraged to adopt a system that automatically applies the VAT rate to their services, depending on where the customer lives, rather than where the seller is based. Failure to do so could result in a loss of income due to an inappropriate pricing strategy, as well as financial penalties for non-compliance or late registration.
To save you the time consuming task of having to register for VAT in every EU member state, businesses can use the Mini One Stop Shop (MOSS). Affected companies can register to use this online service from October 2014. Using the MOSS service means that a business can submit one quarterly VAT return which details all of the sales to non-taxable customers within EU member states.
It’s vital that businesses establish an effective way to determine where customers are based. In order to facilitate this, front and back-office systems may need to be developed or adapted to pinpoint the geographic location and identity of each customer. If goods are sent online e.g. music and games, then these websites will need to request that customers provide information about their residing location. A new pricing strategy will also need to be developed, and businesses will need to decide if they wish to have a global price or a location-based cost for their products.
More information about these changes and a guide to using MOSS can be sourced from HM Revenue and Customs.