New European VAT rules on digital services: the impact on charities

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Charities need to be aware that new 'place of supply' rules for digital services will come into effect on 1 January 2015.

The changes will mean that for digital services supplied to consumers, the 'place of supply', which determines where the services are taxed, will shift from the country in which the supplier is based to the country in which the recipient is based. Digital supplies will be taxed at the VAT rate applicable in the consumer’s member state. This is to prevent digital suppliers from gaining a tax advantage by basing themselves in EU member states where VAT rates are lower.

The term 'digital services' covers:

  • Broadcasting: including the supply of television or radio programs to a schedule by the person that has editorial control of those programmes.
  • Telecommunications: including the service of sending or receiving signals by wire, radio, optical or other systems. It includes fixed and mobile telephony, fax and connection to the internet.
  • E-services: including video on demand, downloaded applications (or ‘apps’), music downloads, gaming, e-books, anti-virus software and on-line auctions.

To avoid suppliers having to register for VAT in every country in which they supply digital services to consumers, the rules are being brought in alongside a new VAT Mini One-Stop Shop (MOSS). This enables VAT registered suppliers to account for all their supplies in the EU via a single online system. Applications for the UK's MOSS can be made from October, so suppliers can get systems and processes in place before the rule changes are implemented.

Charities will be affected as the new rules will apply regardless of whether the supplier is registered for VAT and regardless of the value of the supplies. Therefore, if a non-VAT registered charity supplies e-publications to private individuals in other EU countries, it will need to register for VAT in the UK, then with MOSS; or register for VAT in every EU country in which it supplies digital services to consumers. To read the full HMRC guidance and find out how to apply for the UK's MOSS, please visit the HMRC website.