Bulletin: February 2015
New EU VAT Legislation on Digital Download Products
On 1st January 2015 new EU VAT regulations came into force that affect people who sell digital products and services online (which includes a significant number of hypnotherapists who sell such products via their websites). Whilst these important changes have not been well advertised, they nonetheless apply to sellers WORLDWIDE – not just sellers resident in the EU.
Getting to grips with the fundamentals of the new rules is far from easy and so we are most grateful to GHR Registrants Sharon Stiles and John Moonie for respectively both alerting us to the issue in the first place and in offering an overview of the essentials as below:
Until now, VAT has been charged at the rate applicable in the seller’s country and if you were below the VAT threshold you did not have to register for, or collect VAT.
However, from 1st January 2015, if you provide broadcasting, telecommunications or e-services to any EU consumer you have to add on VAT at the rate that is chargeable in the consumer’s country.
E-services include audio files, video files, recorded webinars, e-books, PDFs, software, games, apps, web hosting, subscriptions, online adverts and anything that is delivered automatically without human intervention.
This is only applicable for sales to consumers (i.e. Business to Consumer). Business to Business sales do not have to have VAT added. How a business is defined may be interpreted differently by some EU countries, however. Some may require proof of a VAT number to classify the buyer as a business.
Everyone needs to comply with this legislation, even if they are not currently VAT registered. There is NO threshold on cross border sales of e-services.
Non-EU businesses also need to charge VAT (and should have been doing so for the last 10 years).
If the seller is below the VAT threshold for their country and sells to a consumer in their own country they do not have to charge or pay VAT on that sale.
There are 2 realistic options for people affected by this:
1. Register for VATMOSS which is the service created by HMRC to deal with the VAT reporting. Each quarter you would provide a VAT return for every EU country. You can supply a nil UK VAT return. (Each EU country will have its own version of VATMOSS. A non-EU seller can register for VATMOSS in any of the EU countries).
If you sell from your own site you will have to adapt it so you can get 2 pieces of non-conflicting evidence of the consumer’s country (e.g. IP address and customer address or country code). You will also have to be able to calculate the appropriate VAT rate for that customer and display it inclusive of VAT before the customer pays.
2. Sell through a third party platform that handles all the VAT payments for you. Some examples are Fastspring, Payhip, Clickbank, Amazon, iTunes. Many of the platforms are either unaware of the legislation, haven’t implemented it yet or have done nothing because they say paying taxes is not their responsibility.
Services that are exempt:
E-mail attachments are not subject to the new rules so if your customer emails you an order and you reply to them with a file attached you do not have to charge VAT. You cannot send them a link to download a file and you cannot send it by automated email, however. This option only really works for very small files because you can’t send the customer a link if the attachment is too large for them to receive – you would have to cancel the sale.
Services which involve a substantial amount of live input are exempt. These include online consultations, live teaching and live webinars. However, if you record the teaching or webinar, it then becomes subject to VAT.
Supplying physical products such as CDs and books are exempt. However, the EU has indicated that it wants to extend this legislation to physical product orders online as early as 2016 so this appears to be just the start.
Those are the basics. There will be a lot of “what if” and “how do I” and “can I” etc. The best places to find out answers to those questions are:
Full details of how the legislation works is at https://www.gov.uk/government/publications/vat-supplying-digital-services-to-private-consumers/vat-businesses-supplying-digital-services-to-private-consumers
There is a FAQ and resources at http://euvataction.org/key-facts/
There is a helpful Facebook group at https://www.facebook.com/groups/DigitalVAT2015/
N.B. Please do not address any queries you may have on the above to the GHR as the legislation is extremely confusing and we have no particular knowledge or insight in the matter. The above does not constitute legal advice and in addition to viewing the material at above links, you may therefore wish to consult with your accountant / financial advisor.
Latest News from the ASA’s Committee of Advertising Practice
The Online Remit Extension: Practical Guidance (issued 9 December 2014)
From 1 March 2011, the Advertising Standards Authority (ASA) began to regulate advertisers’ own marketing communications on their own websites and in other non-paid-for space online under their control. We explain the tests the ASA Council apply when determining whether a communication falls within the remit of the Code and provide illustrative examples of ASA remit decisions demonstrating how these tests are applied in practice.
The UK Code of Non-broadcast Advertising, Sales Promotion and Direct Marketing (the CAP Code) applies to:
“Advertisements and other marketing communications by or from companies, organisations or sole traders on their own websites, or in other non-paid-for space online under their control, that are directly connected with the supply or transfer of goods, services, opportunities and gifts, or which consist of direct solicitations of donations as part of their own fundraising activities.”
This phrase brings within the online remit material which can properly be accepted as constituting an advertisement or other marketing communication, and distinguishes this material from other types of communication e.g. editorial content. A marketing communication is a type of communication for a good, service, opportunity or gift that primarily sets out to sell something. Of course, marketing communications may set out to sell in a myriad of different ways and may not necessarily include a price or seek an immediate financial transaction.
The ASA Council will take into account the entire context in which claims are made in determining whether the primary purpose of the communication is to sell something and therefore whether it falls within the remit of the CAP Code. Statements of belief, broadly falling within the scope of ‘causes’ or ‘ideas’ communications, do not fall within the non-paid-for online remit of the Code, unless they directly solicit donations. Whilst, if a brand takes user generated content and incorporates it into a marketing communication, or actively promotes it, it will very likely be considered directly connected with the supply of goods or services and therefore within the remit of the Code.
Our latest update (please click link) provides a comprehensive explanation of the tests the ASA Council apply when determining whether a communication falls within the remit of the Code, and also contains illustrative ASA remit decisions demonstrating how these tests are applied in practice.
Views expressed within GHR published material and any conclusions reached are those of the authors and not necessarily shared by other individuals, organisations or agencies
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