South: New Year VAT rules will leave businesses un’appy, warns James Cowper

Complex new VAT rules introduced by the EU will leave businesses creating and selling online subscription services and apps directly to consumers with a major accounting headache, warns Thames Valley technology accountants James Cowper.

From January 1, 2015, businesses creating and selling Apps, video downloads and ebooks directly to consumers will, under what is known as the ‘Place of Supply’ rules, have to charge VAT at the rate where the purchaser is based.

Meera Rajah, a VAT specialist at James Cowper, whose clients include a number of fast-growing technology and app businesses, said: “A UK business could quite easily find itself selling an app to a consumer in Luxembourg, having to charge just 15%, and the same app to a consumer in Hungary, with a rate of 27%.

“There are 28 countries in the EU with 30 different VAT rates; this creates a high administrative burden, plus enormous potential for mistakes.”

The rules are further complicated depending on the platform individual apps are sold from.

“Apple’s App Store, for example, is considered a marketplace with purchasers buying directly from Apple and Apple automatically accounting for the VAT,” explained Rajah, “whereas Google Play acts as an agent taking a commission on sales, leaving the retailer having to account for the VAT themselves.

“A business selling the same app from both Apple’s App Store and Google Play will have to account for VAT in completely different ways.”

The Government has, however, recognised the difficulties surrounding the new regime and is to introduce a simplified alternative, to be called the ‘Mini One Stop Shop’ or ‘MOSS’.

Businesses using MOSS will have to submit a separate return electronically within 20 days of the end of the calendar quarter return period.  The return will record the value of supplies to consumers in each member state and the amount of VAT due on these supplies at the local VAT rate.

Rajah explained: “In the UK, the MOSS return will be submitted via the same online portal as the normal VAT return for those businesses that are already VAT registered.  If the business is not already registered and provides these services to consumers in other member states, they will be required to register if they wish to use the MOSS.  If they do not, they face the possibility of having to register for VAT in every EU country where a sale is made.”