|VAT Rate on Digital Services||VAT on Cross-Border Electronically Supplied Services||Digital Reporting Requirements for Foreign Sellers Providing Electronically Supplied Services|
VAT on Digital Services in the United Kingdom
VAT on the provision of digital services has changed from January 2021 with Brexit. The rules of the harmonized Electronically Supplied Services (ESS) of the European Union (EU), especially the One Stop Shop (OSS,) no longer apply in the UK after January 2021.
For B2B supplies of digital services, the general place of supply rule for services has to be taken into consideration.
If a business supplies digital services to consumers (B2C) from the United Kingdom (UK), those supplies are liable to UK VAT.
If a business supplies digital services to consumers (B2C) outside of the UK then these supplies are not liable to UK VAT. They may be liable to VAT in the country where the consumer is based.
VAT Rate: 20% VAT is typically applied to the sale of affected Electronically Supplied Services.
Digital Services in Scope
Supplies of the following digital services by non-resident suppliers are liable for VAT in the United Kingdom:
- the supply of audio and audio-visual content for simultaneous listening or viewing by the general public on the basis of a programme schedule by a person that has editorial responsibility
- live streaming through the internet if broadcast at the same time as transmission by radio or television
- fixed and mobile telephone services for the transmission and switching of voice, data and video, including telephone services with an imaging component, otherwise known as videophone services
- telephone services given through the internet, including Voice over Internet Protocol () VoIP
- voice mail, call waiting, call forwarding, caller identification, 3-way calling and other call management services
- paging services
- access to the internet
- supplies of images or text, such as photos, screensavers, e-books and other digitised documents, for example, files, PDF
- supplies of music, films and games, including games of chance and gambling games, and programmes on demand
- online magazines
- website supply or web hosting services
- distance maintenance of programmes and equipment
- supplies of software and software updates
- advertising space on a website
Digital services that are not affected by these rules:
- supplies of goods, where the order and processing is done electronically
- supplies of physical books, newsletters, newspapers or journals
- services of lawyers and financial consultants who advise clients through email
- booking services or tickets to 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 (in other words, using a remote link)
- offline physical repair services of computer equipment
- advertising services in newspapers, on posters and on television
Determining the Location of the British Consumer
The place of supply of cross-border digital services is the consumer’s location, which is determined by where the consumer usually lives.
Place of supply ‘presumptions’
In order to simplify the place of supply for digital services, one can make a presumption about the place where the supply is to be taxed.
Types of supplies covered by the presumption rule include where the digital service is supplied:
- through a telephone box, a telephone kiosk, a wifi hotspot, an internet café, a restaurant or a hotel lobby (VAT will be due where those places are actually located)
- on board transport travelling between different countries (VAT will be due in the place of departure)
- through a consumer’s telephone landline (VAT is due where the consumer’s landline is located)
- through a mobile phone (the consumer location will be the country code of the SIM card)
- in the country for the postal address where the decoder is located or the viewing card is sent
When the above circumstances do not apply, businesses should keep evidence to show in which country their consumer is normally located in.
Examples of the type of supporting evidence that tax authorities will accept include:
- the billing address of consumer
- the Internet Protocol address of the device used by consumer
- consumer’s bank details
- the country code of the card used by consumer’s SIM
- the location of the consumer’s fixed landline through which the service is supplied
- other commercially relevant information – for example, product coding information which electronically links the sale to a particular jurisdiction
VAT Registration for Foreign Companies
Foreign companies should apply to register for VAT with the local tax authorities when they reach the applicable thresholds. Applications are processed by the local tax authorities.
- VAT registration threshold for non-established sellers: No registration threshold
- VAT registration threshold for non-resident suppliers of Digital Services: No registration threshold
- Northern Ireland (NI), operates a “dual”/”mixed” VAT regime and follows the European Union’s (EU) VAT rules for goods under the Northern Ireland Protocol and UK VAT rules for services. VAT registration threshold for distance selling of goods by non-established sellers to NI consumers: EUR 10,000 (net) per calendar year
- Fiscal representatives: Non-established taxable persons may appoint a tax representative or agent in the UK, but it is not mandatory, unless HMRC directs the taxable person to appoint a tax representative
VAT Returns and payment of taxes
VAT returns for non-residents
Once registered, businesses will need to collect and remit taxes to HMRC.
|VAT Return Name||VAT Return|
|Filing Frequency||Quarterly is the general rule; Monthly: If requested by a business that receives regular repayments|
|Filing Deadline||7th of the second month following the accounting period's end|
|Payment Deadline||Same as the filing deadline|
|Payment Currency||GBP or EUR|
|Input Tax Recovery||A business that is registered for VAT can claim back VAT incurred on goods or services that form a cost component of its taxable supplies|
|Record Storage||6 years|
The UK does not provide simplified returns for non-resident companies. The only exception is where non-resident EU businesses can use the EU OSS return to remit taxes via another EU Member State and avoid VAT registration in the UK is when goods are sold from the EU to consumers in Northern Ireland.
Digital Reporting Requirements for Cross-Border Digital Services
As of now, there are no specific digital reporting requirements for cross-border digital services.
However, following a consultation in 2021, the UK government published draft regulations to implement the OECD's Model Reporting Rules for Digital Platforms (model rules).
- The new rules would require platform operators to collect, verify and report details of their sellers to HMRC
- The rules are likely to apply from 1 January 2024, with the first reports due by 31 January 2025