VAT Changes And What They Mean For You Or Your Business

A single paragraph in the Budget Report 2014 could have repercussions for you or your company:

As announced at budget 2013, the government will legislate to change the rules for the taxation of intra-EU business to consumer supplies of telecommunications, broadcasting and e-services. From 1 January 2015 these services will be taxed in the member state in which the consumer is located, ensuring these are taxed fairly and helping to protect revenue.

We’ve asked our financial friend Geraint Lewis at Kingston Smith to explain what these changes really mean for consumers and companies alike. 

What do these changes mean for companies? 

Companies who are selling Internet based services or telecommunications to individuals within the EU, now for the first time have to consider non-UK VAT as a cost to their business. 

So for example, let’s take an Internet video content provider (based in the UK) that has a subscription model, currently they charge UK VAT regardless of whom their customer is and where they’re based. Once these changes are put in place however, the company will be charging various VAT rates based instead on where the customer is based. 

Which companies do you think are likely to be most affected? 

To be fair, the vast majority of companies are likely to be unaffected as VAT rates throughout Europe are similar.

But it will be important from January 1st, to determine where your customers are based so that you are charging the correct rates of VAT when they purchase your service and it may be necessary to invest in new technology to do this so smaller companies may not have the means to do so. 

Why do you think these changes were made? 

These are the 3rd branch of changes made to VAT. It started with a huge change in January 2010 and 2011, where the bigger picture was considered and it was decided wherever possible VAT should be levied where the item is consumed rather than where it is manufactured or produced. 

Who will benefit most from this change & what effect will it have on consumers? 

No body will particularly benefit and consumers won’t see too much of a change as VAT rates throughout the EU are broadly similar. 

Is there anything else to consider?

With regards to the apps market, the way Apple currently have it structured means that someone who has developed an app within the UK, sells the license to Apple once it appears on the App Store and then they pass it on to the customer, meaning all VAT is handled by Apple out of Luxembourg. However once the changes are put into place, it is very possible they will not be so willing to do so when they have to account for 27 different rates of VAT. So they may decide to let the developers handle the VAT side, which for small business could be highly destructive as it’s unlikely they will have the means to do so.

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