New EU VAT rates will affect online businesses

Find out who the new rates apply to, what you need to be aware of, and details of the schemes that intend to take the pain out of the admin involved.

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As of the start of the new year the EU are changing the rules on VAT for any businesses that supply digital services online in a move that could potentially affect companies that trade across the continent in various locations. Here are the essentials of what you need to know:

Who will the new measures apply to?

Beginning on January 1, 2015, any businesses that offer a service which requires access to the internet to download any digital services, such as software, apps, e-books, movies or music for example, will be charged at a new rate of VAT. However this will only affect businesses who make sales to customers specifically, and not to businesses who solely sell to other businesses directly. The sales of physical goods will be unaffected by these new measures.

Will the rate be the same across the EU?

The rate will vary depending on the country in the EU where that service has been supplied, as each member nation will have its own individual rate that they will implement. Affected businesses will have to identify where their customers are so they can apply the appropriate VAT rate for them.

What can affected businesses do?

There are a couple of options open to any businesses affected by the change. Businesses can either register for VAT in each EU member state where they have sales or they can sign up to HMRC’s new scheme which ties-in with the changes, the One-Stop Shop (MOSS). The scheme has been specifically created to help ease the otherwise potentially lengthy administrative process for businesses and their owners that may be a result of these changes. Businesses may also have to update their own website and their checkout page to reflect the various, live VAT rates around Europe changing all the time.

Anything else to be aware of?

Along with these major changes come a couple of other guidelines to bear in mind. Businesses that are affected must also adhere to other legislation that requires them to store any transaction data that they hold for a period of ten years after the point of sale, in case any other EU member states request an audit of the data. Foreign exchange and conversion rates must be taken into account throughout the process too, especially when we consider that out of the 28 EU member states that there are at the moment, ten of these are outside of the Eurozone and use their own currencies.

If you are a business who supplies digital services online and is affected by these changes, talk to us at Cohesion Digitalon 0141 249 0641.

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