EU VAT Rules after 1 January 2015

I’ve been following Rachel Andrew’s post on EU VAT rules with interest. New laws come into play on the 1st January 2015 which shake up the charging of VAT in various EU Member States.

VAT is charged at the Place of Supply, and it’s this definition which appears to be changing. For electronic services at least, instead of the supplier charging VAT at their domestic rate, they will effectively charge it at the customer’s national rate.

If I (a UK VAT-registered supplier) provide you (a consumer) with a piece of software and you live in the Netherlands, I would apply a VAT charge of 20% – the UK rate.

From 1 January, I would charge 21%, the Dutch rate.

On the face of it, this doesn’t seem so unreasonable. Otherwise, companies will (and do) flock to low-VAT companies to sell their electronic wares. However, there is also an apparent requirement to register in the customer’s country as well, so I (the supplier) would need to be registered for VAT in the UK, in NL, and any other applicable country I happen to supply to.

That’s a pain in the backside for any small business.

However, there does seem to be an alternative solution, called MOSS. This appears to act as a gateway for cross-EU VAT handling, and saves the supplier having to register in each EU country.

The way I’m reading this (usual disclaimer: I am not an accountant) suggests that the government are pushing MOSS quite firmly as the de facto way of trading in Europe for small businesses. Instead of filing with each member state, UK suppliers will use the MOSS system to indicate their supplies to non-UK EU countries. Much simpler, except:

  • Place of Supply is still with the customer, so the supplier needs to apply the local VAT rate accordingly.
  • MOSS requires 10 years’ of records to be kept. VAT only required six.
  • MOSS returns have a shorter deadline than standard UK returns (20 days).

Whichever route is chosen, suppliers will need to make sure they have plans in place to support the new VAT rules come 1 January. Websites need to be updated, procedures need to be reviewed and reminders need to be set.

It’s an interesting development and one which affects a great number of small businesses. Rachel has set up a GitHub page to collect and distribute further information. If you are a EU-trading electronic business I’d strongly suggest a look.

VAT Dropped Today

Good morning! It’s just gone 7am and those programmers out there involved in EPOS and e-commerce systems are either sitting smug or are running around trying to get the computers updated before the shops open.

Today’s the day standard rate of VAT (sales tax) drops from 17.5% to 15%, in a move by the Chancellor to encourage spending. Whether it works or not remains to be seen, I’ve heard that many shops are simply keeping prices as-is, and pocketing the slight difference in markup from each sale. Some high-street shops have bizarre “offers” highlighting the VAT drop as the reason but (in one case) “offer ends 3 December”.

In view of all of this number-crunching fun, I’ve produced a handy VAT Check Sheet for download, which allows you to see the VAT difference, new totals and how much shops should be dropping prices. I think the numbers are right but if anybody has any corrections, thoughts or comments I’ll be happy to update.