EU VAT changes and your business
From the January 1st of this year, the way businesses based in the UK must charge VAT to their international customers has changed. Previously all of your transactions charged VAT at the prevailing rate in the UK – 20%. But in an effort to address the challenge of differing VAT rates in the various EU member states, new legislation now demands that value added tax be charged at the rate applicable to the country where your customer is based.
B2B or B2C?
Applying multiple VAT rates is difficult in itself (Luxembourg charges 17% for digital downloads whilst Hungary levies 27% for instance), but things become even more complicated when trying to define B2B and B2C transactions. B2B transactions are VAT exempt, while those to regular consumers need to have VAT applied. For businesses that only trade online, automatically detecting the difference between B2B and B2C purchases could be very hard to determine automatically. This may require changes in the purchasing process to identify consumers.
Defining digital goods
Things become even harder for business owners when it comes to classifying which goods and services attract VAT. Under the new regime, some activities are completely VAT exempt. Downloadable music and films, along with streaming services are VATable, as are eBooks, games and apps. Actual web content on the other hand is not.
Currently the rule of thumb when defining VAT status is to consider whether the customer actually downloads anything. If they pay for a book and then download it to their Kindle, they must be charged VAT. If they pay for access to a copy of the book stored on your company server, they do not need to be charged VAT.
Avoiding the pitfalls
Obviously, with such complexity of VAT administration and calculation, there are dozens of pitfalls beyond these above for businesses to avoid. If you are concerned about the task of managing your business’ new VAT, you should consider securing some professional VAT advice and assistance as soon as possible.
