From 1 January, VAT will be charged in the country of the customer, rather than the seller, on all digital sales (downloads, e-books etc).
The changes mean that all companies selling digital products in the EU will have to file VAT returns and identify the location of customers. HMRC has created a VAT mini one-stop shop called VAT MOSS to allow a business to register for VAT in 27 countries simultaneously.
The changes will require around 200,000 small UK firms that sell abroad to register for VAT for the first time. Although there is no requirement to collect UK VAT if a business’s turnover is less than £81,000, the changes mean that all companies selling digital products in the EU will have to file VAT returns and identify the location of customers.
From the Chamber’s perspective, this is another example of the unintended consequences of macro-level regulatory changes designed to tackle issues that primarily relate to large businesses, but actually ends up hurting the young, high growth businesses that Europe needs for growth and job creation. This is likely to create a major administrative burden.
In summary, the change originally came about after complaints that large online retailers such as Amazon were undercutting domestic retailers by selling e-books etc from low VAT countries (e.g. Amazon in Luxembourg where VAT is only 3%).
British Chambers of Commerce recently attended a meeting with David Gauke, Financial Secretary to the Treasury, and the HMRC. Both noted that most EU countries do not operate a VAT exemption, so the UK is very much in a minority in arguing against the new rules. However, they are looking to make further improvements and are speaking to their counterparts across the EU to try and at least partly mitigate the impact of these changes.