From January 2015 there will be major changes in the way VAT is levied. Here's our guide to what you need to know...
Firms supplying certain services to consumers across the EU need to ready themselves for sweeping VAT changes.
The new rules affect a wide range of services from fixed and mobile telecoms, radio and TV programmes, through to music and software downloaded from the internet.
From 1 January 2015, VAT on telecoms, broadcasting and e-services will no longer be accounted for at the rate corresponding to the supplier’s home country. Firms will instead need to charge VAT at the rate applicable in their customers’ home countries.
The changes to the EU’s so-called VAT place of supply rules are designed to stop firms from being able to reduce VAT bills merely by relocating to countries with lower VAT rates. For instance, Luxemburg’s VAT rate of just 15% has encouraged online giants such as Amazon to locate there. While some EU countries have VAT rates as high as 25%, the UK’s 20% VAT rate is about average in EU terms.
Meeting the challenge
While many EU customers will face higher VAT bills as a result of the rule changes, those firms supplying the impacted services across the EU will also be hit by an increased administrative burden. As well as keeping track of VAT rates across 28 EU member countries, companies will need to be able to process more information about their customers and keep additional records.
Robert Facer, a VAT specialist at accountancy firm Moore Stephens, said those firms affected should be preparing for the changes now. Smaller firms could find the extra administrative burden more challenging than larger, more established companies
“Suppliers have got to think about their pricing and systems so they can determine the correct rate of VAT to charge on their services to consumers across the EU, so there is going to be a significant administrative burden. Just keeping track of VAT rates across member states is not entirely straight forward in itself, but companies will also need to record a lot more information,” said Mr Facer.
While those supplying similar B2B services across the EU should not be directly affected by the changes, many firms supplying a combination of B2B and B2C services will also have to consider how they identify the status of their customers, separating business from private customers.
“There are various related issues, such as how you identify the location and status of your customer, and how you show the evidence of that,” added Mr Facer.
One stop shop
While the changes might represent an increased administrative burden, firms can at least avoid having to register for VAT with separate jurisdictions across the EU. From 1 January 2015, firms will be able to complete one online registration through HM Revenue and Customs’ (HMRC) new VAT Mini One Stop Shop (MOSS). It means affected firms will be able to account for the VAT due on their sales in any other EU member state by submitting a single VAT MOSS return and any related payment to HMRC.
HMRC will then send an electronic copy of the appropriate part of your VAT MOSS return, and the related VAT payment, to each relevant EU member state's tax authority on your behalf.
