The new VAT rules have been in effect for over a year now and yet not many businesses are aware of them. In a nutshell a business may have to pay VAT on its sales even though it is not registered for VAT AND at a higher rate than the UK! How is this possible? In order to stop global companies from basing themselves in countries with lower tax rates, the lawmakers decided to create a level playing field for UK businesses by making them pay VAT on sales of digital products to the EU at the rate applicable in the country they are selling to!
So how do you know if the rules apply to you? Find out in 5 easy steps:
- Determine whether you are supplying a “digital service” (because if it isn’t, the general place of supply of services rules will apply).
- Determine the status of your customer ie, business or non-business. If it is a non-business, the rules apply
- Determine the place of supply (ie, the member state).
- Determine whether the supply must be taxed at the member state’s standard or reduced VAT rate, or whether it is eligible for any VAT exemptions (eg, most member states exempt betting and gaming).
- You need to identify the place where your consumer is based, has their permanent address, or usually resides. This will be the member state where VAT on the digital services supply is due. So if, for example, a UK citizen is an ‘expat’ who works or lives most of their time in Spain, then you, as the person supplying digital services to that consumer, should be charging Spanish VAT on those services and not UK VAT.
There is a handy flow chart to help you decide whether the rules apply to you or not here.
For more information go to the government hub here