Since 1 January 2021, UK businesses can no longer use VAT Mini One Stop Shop (MOSS) for sales to EU customers. The VAT rules in respect of digital services now follow the “place of supply” rules.
What are the “place of supply” rules?
For VAT purposes, the place of supply of a service is the place where that service is treated as being supplied i.e. where the customer is located.
If the supply is in the UK, then it is subject to UK VAT. If the supply is in an EU member state or another country, it is said to be ‘outside the scope’ of UK VAT.
How does this affect the supply of digital services?
If your business provides digital services to UK customers, then those supplies are liable to UK VAT. If your business provides digital services to customers outside the UK then these are not liable to UK VAT.
However, these supplies to EU customers may now be liable to VAT in the country where the customer is based.
If your business supplies digital services to customers via a third-party platform or marketplace, then that digital platform is responsible for accounting for VAT on the supply, not your business.
What action is required?
The place of supply will now be wherever the customer is located. This means that your business must either:
- register for the Non-Union VAT MOSS scheme in an EU member state; or
- register for VAT in each individual EU member state where you supply digital services to customers.
What ‘digital services’ do these rules cover?
Below is a list of common examples of electronic supplies and whether or not they qualify as ‘digital services’, and are therefore caught by these new rules: –
| Service | e-Service? | Electronically supplied? | Covered by these new rules? |
| PDF document manually emailed by seller | Yes | No | No |
| PDF document automatically emailed by seller’s system | Yes | Yes | Yes |
| PDF document automatically downloaded from site | Yes | Yes | Yes |
| Stock photographs available for automatic download | Yes | Yes | Yes |
| Online course consisting of pre-recorded videos and downloadable PDFs | Yes | Yes | Yes |
| Online course consisting of pre-recorded videos and downloadable PDFs plus support from a live tutor | Yes | No | No |
| Individually commissioned content sent in digital form, for example, photographs, reports, medical results | Yes | No | No |
| Link to online content or download sent by manual email | Yes | Yes | Yes |
Summary
The rules around digital services have changed significantly and action is required to ensure that businesses are compliant with the new rules. If you have any queries about how these new rules will affect you, please get in touch with your usual RG contact.