Post-Brexit VAT rules on cross border digital sales.

Oh, dear. There is quite a lot going on recently isn't there? With the Covid and the Brexit regulations and guidelines are changing with the snap of the fingers. If you are just about to start your business, trying to work out which regulation is still applicable to you, and which isn't might be quite confusing. So I'm doing the hard work for you. This week - all you need to know about VAT on digital sales.

What is and what isn't digital sales

HMRC defines types of digital services as:

• Radio and television broadcasting services

• Telecommunication services

• Electronically supplied services

Unless you own a tv station, a radio, or a telecommunication company, you are probably going to be most interested in the last position, and that's the one I'm going to focus on.

Although electronically supplied services are a type of digital services, not all electronically supplied services are in fact digital services. HMRC states that digital services are e-services (short for electronically supplied services), which are automatically delivered over the internet, or an electronic network, where there’s minimal or no human intervention.'

It means, that if you for example create an online course, which consists of pre-recorded videos and downloadable and printable materials, it will be treated as a digital service. If you choose to deliver the same course online in person, using live webinars, it will not be treated as a digital service.

Here are a few examples of e-services, which are also digital services:

• e-book

• software

• podcast

• game

• pre-recorded video course

• downloadable music

• smartphone and tablet apps

• PDF document sent to the customer automatically after the payment is approved

• stock images, automatically available after payment.

Who you sell to matters

If you sell to other business that is located outside of the UK, you will not have to account for VAT on these transactions. It's the business you are selling to who is responsible to account for VAT or other sales tax due to the tax authorities in their country. You should invoice them at 0% VAT if you are VAT registered in the UK. You should keep proof that this transaction is a cross border sale and proof that your customer is in fact a business.

If your customer is not a business, you might be liable for VAT or any other sales tax in the country of your customers' residence. You might have to check this country's sales tax rules, and you might have to register for VAT in that country and pay VAT tax there.

Who is responsible for accounting for the VAT on digital services (platform vs direct sales)

If you are selling via a third party platform or marketplace ( like Amazon or Udemy) It's the platform who is responsible for accounting for the VAT, not you. If you, however, choose to sell your digital services directly ( for example through your own website), you are responsible for the VAT accounting. If all your customers are UK based, you will charge your customers UK VAT, and you only have to be registered for VAT with HMRC, if you have reached the VAT registration threshold. However, if you sell digital services to customers based overseas, you might be liable for sales tax in their country and have to check this country's sales tax rules.

VAT EU MOSS scheme

If you are selling your digital services to EU, instead of registering to EU countries separately, you can register for EU VAT Mini One Stop Shop scheme in any EU state, which was created to simplify paying VAT tax in the EU. Using this scheme you can report and pay VAT due in all EU countries in one place, only once every quarter. Alternatively, you can register for VAT separately in all the EU states that you are selling to.

What about the threshold of £8,818 of cross boarder digital service sales?

This threshold only applies to companies based in EU member states. As the UK is no longer the EU member, this threshold doesn't apply anymore to the UK based business. There is nill threshold for VAT digital sales in the EU from outside of the EU, which means that all digital services sales that you make in the EU are now subject to VAT.

You can find more information about VAT rules for digital service sales on HMRC's website.