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The rules for VAT on services and digital sales which cross the border between the EU and the UK can be a horribly complicated subject, so we’ll go over what the rules mean for UK businesses.

How does VAT work between the UK and EU?

VAT is charged based on where goods and services are supplied to. For example, this means that taxable goods going into France are subject to French VAT, even if they started out as an export from the UK. The same principle applies to services, which is why the place of supply is so important.

What is the 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, a customer has a head office in Germany and a smaller base in France, and 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 important because this is where the service is liable for VAT.

 
The place that the service is liable for VAT tells us what rate of VAT is due, and which country’s VAT authority it should be paid to.

The export VAT rules you need to apply 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).
 

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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 when they submit their own VAT return. You’ll need to make sure that your invoices show exactly what services you provide, and where you supply them to, to make it clear why you didn’t charge VAT on the sale.

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

If you supply services directly to EU consumers (for their personal use, rather than being used in a business) the VAT that you charge will usually be determined by where the customer ‘belongs’. Because you’re supplying services to a customer in the EU, the supply is outside the scope of UK VAT. Again, you’ll need to be very clear on where the place of supply happens!

VAT on digital sales between the UK and EU

UK businesses used to be able to register for the VAT MOSS scheme, allowing them to submit a single VAT MOSS Return to account for the VAT on digital sales anywhere in the EU. With the UK no longer part of the EU VAT area this isn’t an option, and the process for collecting VAT on digital sales to EU and UK customers now 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

If you’re not in the EU or the UK:

  • You’ll need to make a VAT MOSS registration in the EU so that you can sell digital services to EU consumers
  • To sell digital services to UK consumers, you’ll need to register for VAT with HMRC

Talk to one of the team about online accounting services for businesses. Call 020 3355 4047, or get an instant 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. Learn more about Elizabeth.

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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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