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The Brexit transition period has ended, and there are new rules for VAT on services and digital sales which cross the border between the EU and the UK. There are also other VAT changes, which we summarise in our article about what Brexit means for VAT.

Why has VAT changed for UK businesses?

The UK is no longer part of the EU, and has left the EU VAT area. This changes the way that VAT works for goods and services crossing the border between the UK and the EU.

To make it easier to understand the changes, we explain the new processes for exporting goods in another article. There are different rules for the supply of services and digital sales, which we explain below.

How does VAT work on supplies across the UK border?

VAT is charged based on where goods and services are supplied to. As an example, this means that taxable goods going into France are subject to French VAT, even if they’re exported from the UK.

The same principle applies to services, which is why the place of supply is important for businesses supplying services.

What is place of supply for VAT?

When we talk about VAT, the place of supply is the location that you supply the service to. For example, the buyer has a head office in Germany, and a smaller base in France. They buy services from you for their French offices. The place of supply is France, even though their head office is elsewhere.

The place of supply is where the service is liable for VAT. This informs what rate of VAT is due, and to which country’s VAT authority. The rules depend on whether you supply services to other businesses, or to consumers (who buy the services for their own personal use, not to use in a business).

 
comprehensive vat returns service

Making cross border supplies of services to other businesses (B2B)

If you supply services to a business in another country, you won’t charge VAT on the sale. Instead, the business buying the service accounts for the VAT as a reverse charge on their own VAT return. Make sure that your invoices show exactly what services you provide, and where you supply them to.

Making cross border supplies of services directly to consumers (B2C)

If you supply services directly to EU consumers, the VAT will be zero-rated. This means that you’re technically charging VAT on the sale, but at a rate of zero per cent. Again, you’ll need to be very clear on where the place of supply happens! This will help you when it’s time to complete your VAT return.

VAT on digital sales after the Brexit transition period

There are also changes for businesses which sell digital services across the UK border, between the UK and the EU, or into the EU from overseas. This is because the UK is no longer part of the EU VAT MOSS (Mini One-Stop-Shop) scheme.

What is EU VAT MOSS?

EU VAT MOSS aims to make VAT easier for businesses which sell digital services to EU consumers. Under the scheme, the seller registers for VAT MOSS in any EU country. They then submit a single VAT MOSS Return to account for the VAT on digital sales anywhere in the EU. That way, the business doesn’t have to submit a separate VAT return for every EU country it sells digital services to.

Now that the Brexit transition period has ended, the UK is no longer a member of the EU VAT MOSS scheme.

 
This changes the way that VAT is collected on digital sales to EU customers. The process for this depends on where the seller is.

UK businesses who sell digital services to consumers in the EU

If your UK business sells digital services to EU consumers, you have two options.

Sellers in the EU who sell digital services to UK customers

If you’re based in the EU and sell digital services to UK consumers, you’ll need to register for VAT with HMRC.

Digital sellers outside of the UK and EU who registered for VAT MOSS via the UK

If you’re not in the EU or the UK, and made your VAT MOSS registration via the UK, there are also changes.

Talk to one of the team about online accounting services for businesses. Call 020 3355 4047, or request a free online quote.

About The Author

Elizabeth Hughes

A content writer specialising in business, finance, software, and beyond. I'm a wordsmith with a penchant for puns and making complex subjects accessible.

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Nick
Nick
7th April 2021 10:44 am

Hi, what about UK business selling digits services to countries outside of the EU?

Andy
Andy
21st April 2021 9:51 pm

Hi, a UK business not registerd for VAT would like to order a 3D design (e.g. in CAD file) from a freelancer in the EU country – does import VAT apply?

Mark
Mark
23rd April 2021 12:08 pm

Hi Elizabeth,

Very useful article, thanks.

What about selling digital services from the UK to EU Businesses. Are the rules the same as selling to consumers?

Mark

John Fallows
John Fallows
20th May 2021 12:11 pm

Hi, I’m struggling to find a definition of “Digital Services”, what ‘they’ do, and don’t include, and what the VAT situation should be. I am based in the UK and sell software – a permanent licence – to clients in the UK and in the EU. I do not see this as a service as the client can operate the software in isolation from my company and the internet. If it is not a service, what is the VAT situation? Any help appreciated.

John Fallows
John Fallows
20th May 2021 3:39 pm

Hi Elizabeth, thanks for the quick reply. I read through the doc and it seems that what we do is not ‘Digital Services’. Yes we supply software and updates over the internet, but it is not automatic and requires human intervention. So, based on that, can I assume that we do not need to register for VAT in the EU states and that our invoices to clients just need to show the ex-VAT pricing. Thanks for your help, John

Tatyana
Tatyana
14th September 2021 11:32 am

Hi Elizabeth,
If EU Individual (VAT-registered in Spain) sells digital services to UK business (VAT-registered in the UK), should EU individual charge EU VAT?

Wendy
Wendy
1st November 2021 2:37 pm

Hi Elizabeth.
Thank you for this useful information.
What is the threshold for registering for VAT in EU member states?

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