VAT on digital services and VAT OSS

From the 1st of January 2015 the EU introduced new legislation on VAT. The sale of digital services, to customers within the EU, will require VAT to be charged at the rate of that consumers country.

What are digital services?

Digital services refers to broadcasting, telecoms and e-services.

Broadcasting – radio and television services such as satellite broadcasting.

Telecoms – includes mobile phone contracts, broadband internet connection and other communication services.

E-services – anything delivered over the internet. This includes cloud applications, subscription video or music services, mobile applications, downloads, on-line gaming, e-books etc.

Anything that is delivered electronically over the internet or over the air would be considered a digital service (though some exceptions apply).

What is VAT OSS

OSS (previously MOSS - Mini One Stop Shop) stands for One Stop Shop and is an optional VAT scheme you can register to report digital service VAT. You can then report your VAT for digital service sales in a single quarterly return to HMRC. HMRC will then send the payment on to the appropriate countries.

VAT OSS returns are due by the 20th of the month following that quarter.

If you do not register for OSS you would need to register for VAT in each European country you trade in.

What do I need to do?

If you sell digital services in Europe you will need to be compliant with the new EU regulations. You will need to:

  • Register for OSS

  • Establish whether your customers are businesses or consumers.

  • Record what country your customers are in.

  • Know the VAT rate for that region.

  • Record the correct VAT rate for your digital services on the invoice.

  • Have two pieces of non-contradictory proof of the customer’s country.

You’ll need to keep these records for 10 years. If you’re keeping details electronically you should also be registered with the Information Commissioner’s Office.

What if I’m below the threshold and not registered for VAT?

If you’re not registered for VAT, then you will need to do that first. Assuming you’re still below the VAT threshold you don’t need to charge VAT on your sales and you shouldn’t record VAT on your purchases. Once a quarter you will need to submit a VAT return to HMRC but this can be what is called a “Nil Return” where you don’t declare or pay any VAT.

You can find out more about the new legislation and how to register for VAT OSS on gov.uk.