Contractors' Questions: Do VAT place of supply rule changes affect me?
Contractor’s Question: My ‘Plan B’ business as a contractor is about to go live from the UK offering an online service with downloadable software to people in the major EU countries. Having heard that the VAT rules are changing from early next year, should I be taking any steps now ahead of these changes?
Expert’s Answer: You are referring to the VAT ‘place of supply’ changes that will be introduced from January 1st 2015. These incoming rules will impact all businesses that are VAT-registered and providing e-services, telecommunications and broadcasting to consumers in other EU nations, so yes you stand to be affected.
Currently, if you provide services to individual consumers in the EU, you charge VAT based on where the service is supplied. In your case, this is the UK, so you levy VAT at 20%, which is declared and paid through your UK VAT return with HM Revenue & Customs.
But from next year, you must charge VAT at the rate of the EU country where your customers are located when they download your service, which then needs to be paid to the relevant country. To save you the administrative burden of having to register for VAT in each EU country you supply, you will be able to use the VAT Mini One Stop Shop, known as Moss. This service collects the VAT and distributes it to the correct countries on your behalf.
In terms of preparations now, perhaps start identifying the countries in which your customers are based because, from January, you will have to charge the correct rates of VAT when they buy your services. Consider that you may need to invest in new technology to do this.
Generally-speaking, it will now be important for you to keep abreast of changes in EU VAT rates. But under the new framework, from January 1st 2015, it is only B2C supplies of e-services, telecommunications and broadcasting that are caught. So if you supply one of these types of services to businesses only (including those who are self-employed) then the changes will not affect you. For such business customers, you will not need to charge VAT, as long as they provide you with their VAT number or some other evidence of their business status.
The expert was Jon Dawson, partner at Top 20 chartered accountancy firm Kingston Smith LLP.