VAT – Getting ready for 2015
Business to Customer (B2C) ecommerce – the 2015 VAT changes
Two major changes to the treatment of cross-boarder B2C transactions are on the way. The first change affects the VAT place of supply rules for electronically supplied services (e-services) made by a business established in one EU member state to a private individual or non-business organisation in another member state (“intra EU B2C supplies”). These services are currently taxed where the business supplier is established. However, from 1 January 2015 they will be taxed in the member state in which the consumer is located. This means that affected UK businesses will no longer charge the local UK standard rate of VAT, but will instead have to charge and account for the rate of VAT in the customers country, which could be more than 20%.
E-services include telecommunications, broadcasting and electronic services i.e. paid for services that are delivered over the internet such as access to and downloading of screensavers, ringtones, music, films, online games, e-books, online information, subscriptions to magazines, software upgrades and website hosting.
The second change is the introduction of the VAT Mini One Stop Shop (MOSS). With effect from October 2014, suppliers affected by the 1 January 2015 changes will be able to register under MOSS in the UK. MOSS will allow businesses to file a single VAT return on which they will account for VAT due in respect of B2C sales of the e-services that they supply in all other EU member states (at the appropriate rate of tax in each country). This will avoid the need to register for VAT in several EU countries (there are now 28!) and file multiple returns.
Businesses should start planning for these changes now by assessing which of their services will be affected by the new rules and taking steps to update software and accounting systems. Businesses will need to be able to identify the country location of their customers and know the different VAT rates in other EC member states. This will be essential to managing pricing in order to avoid a profitable sale turning into a loss.
There will be issues involving contracts, selling via platforms and issues to be addressed within supplier’s IT systems to ensure they are capable of capturing and processing the necessary information. Failures in VAT accounting can lead to the imposition of not only UK VAT penalties, but the VAT penalty regimes applicable in the various countries where sales take place.
Date: 19th June, 2014
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