EU threshold for VAT on digital services from 2019

HMRC has launched a short technical consultation on draft statutory instruments covering changes to the VAT treatment of business to consumer supplies of digital services, which introduce a new €10,000 (£8,894) threshold for total supplies to the EU in a year of sales

This measure will make two changes to the rules for businesses making sales of digital services to consumers across the EU, which are due to come into force in January 2019.

The first is the introduction of the (sterling equivalent) €10,000 threshold for total supplies to the EU in a year of sales of digital services. This change means that businesses will only be subject to the VAT rules of their home country if their relevant sales across the EU in a year (and the preceding year) falls below this threshold.

If the businesses total taxable turnover is below the UK VAT registration threshold they will be able to de-register from VAT. Businesses can continue to apply the current rules if they so choose.

Secondly, the legislation will allow non-EU businesses, which are registered for VAT for other purposes, to use the mini one stop shop (MOSS) scheme to account for VAT on sales of digital services to consumers in EU member states. This group are currently excluded from using MOSS.

HMRC’s tax information and impact note suggests there will be a negligible impact on the Treasury as a result of the changes, which were agreed across all EU member states in December 2017.

The measure is expected to have a positive impact on approximately 1200 businesses that fall below the €10,000 turnover threshold, as all their supplies of digital services (including those to other EU member states) will now be treated as though those supplies were made in the UK. This means they will not be required to register for VAT in the UK if their total taxable turnover falls below the UK VAT registration threshold.

It is also expected to reduce business administrative burdens. An on-going saving will result from the affected businesses no longer being required to register for VAT and submit VAT returns, estimated at around £260 per annum per business. In addition, there is an estimated saving of around £40 per annum per business as a result of no longer being required to report quarterly through MOSS.

The consultation closes on 8 October.

Open consultation Draft legislation: VAT supplies of electronic, telecommunication and broadcasting services orders 2018 is here

Policy paper VAT changes to the supply of digital services 2019 is here

Report by Pat Sweet

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