VAT rule change from 1 January 2015 for digital services

VAT rule change from 1 January 2015 for digital services
On 1 January 2015 the VAT rules for cross-border B2C supplies of ‘digital services’ (i.e. broadcasting, telecoms and e-services) will change. From that date, VAT must be accounted for in the member state where the customer normally lives, rather than where the supplier of the service is established. This means that sellers of digital services will no longer be able to unfairly undercut businesses in the UK by locating themselves in another EU member state with a lower VAT rate.
The changes apply to digital services. These are broadcasting, telecommunications and e-services that are electronically supplied. It is unlikely that any small businesses supply broadcasting or telecommunications, but many will supply e-services to non-business customers in other EU member states and they will have to charge and account for VAT on their supplies.
Sales not affected by the change
Using the internet, or some electronic means of communication, just to communicate or facilitate trading does not necessarily mean that you are supplying e-services.
Using the internet for the following does not count:
• supplies of goods, where the ordering and processing are electronic
• supplies of physical books, newsletters, newspapers or journals
• services by lawyers and financial consultants who advise clients through e-mail
• booking services for entertainment events, hotel accommodation or car hire
• educational or professional courses, where the content is delivered by a teacher over the internet or an electronic network
• offline physical repair services of computer equipment
• advertising services in newspapers, on posters or on television
E-services which are covered by the change in rules
The 1 January 2015 rule change only applies to e-services that are electronically supplied.
An e-service includes things like:
• images or text, such as photos, screensavers, e-books and other digitised documents e.g. pdf files
• music, films and games, including games of chance and gambling games, and of programmes on demand
• on-line magazines
• website supply or web hosting services
• distance maintenance of programmes and equipment
• supplies of software and software updates
• advertising space on a website
What is meant by electronically supplied?
This covers e-services which are automatically delivered over the internet, or an electronic network, where there is minimal or no human intervention. In practice, this means:
Where the sale of the digital content is entirely automatic – for eg a customer clicks the ‘buy now’ button on a website and the:
• content downloads onto their device
• customer receives an automated e-mail containing the content
Where the sale of the digital content is essentially automatic, and the small amount of manual process involved does not change the nature of the supply from an e-service. Examples of sales that are essentially automatic are where a customer clicks a “buy now” button on the website and the seller receives a notification and clicks a button, which :
• automatically sends an e-mail containing the digital content to the customer
• produces an e-mail pre-populated with the customer’s details followed by the seller attaching the digital content and clicking ‘send’
All e-services that are electronically supplied in the ways outlined above are categorised as ‘digital services’ and are covered by the rule change.