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Uk vat scheme for digital services

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UK VAT on digital services 

Do you sell digital products or services to the UK? 

It is necessary to collect and pay VAT to the UK on the sale of digital items. All business-to-consumer (B2C) sales into the UK, both physical and digital, are subject to VAT regardless of value.

This guide will discuss the most important factors to consider when selling into the UK, what qualifies as a digital service, examples of these services, combined digital and physical sales, and information on VAT registration. Our UK VAT guide covers more details on the entire scheme, including VAT registration and remittance.

What is a digital service?

Digital services include telecommunications, broadcasting, and electronic services (TBE), or services that are supplied electronically (ESS) (downloaded, emailed, etc.) as opposed to being physically shipped.

If an item is stored digitally, supplied/delivered electronically with minimal human involvement, and used in an electronic format, it is considered a digital product or service. These are products that the customer receives via email, by downloading from the internet, or through logging into a website, i.e. software, digital audio, video, and ebook files.

Examples of electronic supplies and whether or not they are digital services

Source: UK VAT rules for digital services

ServiceE-service (Yes/No)Electronically supplied (Yes/No)Subject to VAT (Yes/No)
PDF document manually emailed by sellerYesNoNo
PDF document automatically emailed by seller’s systemYesYesYes
PDF document automatically downloaded from siteYesYesYes
Stock photographs available for automatic downloadYesYesYes
Online streaming services and music, films, and games available for downloadYesYesYes
Live webinarNoNoNo
Online course consisting of pre-recorded videos and downloadable PDFs (with no live instructor involved)YesYesYes
Online course consisting of pre-recorded videos and downloadable PDFs plus support from a live instructorYesNoNo
Individually commissioned content sent in digital form, for example, photographs, reports, medical resultsYesNoNo
Link to online content or download sent by manual emailYesYesYes

To bundle the sale of physical and digital goods

Physical products and digital products can be bundled together on one invoice for tax purposes or provided as separate sales with separate invoices. Since every digital or physical sale is taxed regardless of the value, it no longer makes sense to split the invoices.

Examples of bundled supplies:

  • Physical technical journal with supplementary online content
  • DVD discs with access to online streaming of the content
  • Music CD with access to a digital download of the content

UK VAT-related factors to consider when selling into the UK

The two most important key factors to remember about UK VAT (for physical **and **digital sales into the UK) are as follows:

  • All orders entering the UK are subject to VAT.
  • The UK tax authority (Her Majesty’s Revenue and Customs) requires VAT to be charged at the point of sale on your website for low-value imports (orders where total of goods valued at or less than £135). Once you’ve collected this VAT, you must remit it to HMRC (Her Majesty’s Revenue and Customs) quarterly.

For B2C digital sales into the UK, the most important factors to consider are as follows:

  • The location of your customer

    • If they’re in the UK, the sale is subject to UK VAT and you must adhere to the above rules.
    • Their wifi hotspot, landline, mobile phone SIM card, postal address, or IP address can be used to reveal their general location.
  • Your business' location

    • If your business is located outside of the UK and is selling into the UK, your supplies are subject to UK VAT.
  • Whether your customer is a business or an individual consumer

    • B2C transactions are subject to the above rules; business customers will have their own VAT number and will remit to HMRC on their own.
  • Whether your online store is independent or part of an online marketplace

    • If you supply digital services to consumers via a third-party platform or marketplace, the digital platform is responsible for VAT collection and remittance, not you.

UK VAT collection, registration, and remittance

See our UK VAT guide for details on VAT collection, registration, and remittance to HMRC.

B2B exemptions

If your business sells goods under £135 to UK VAT-registered businesses, the responsibility to remit tax falls to the customer; however, the customer’s VAT number must be included on the invoice, along with a note making it clear that the customer’s business is responsible for VAT, i.e. “reverse charge: customer to account for VAT to HMRC.”

Noncompliance

Failure to register and pay VAT in the UK is tax evasion.

The UK is committed to keeping the playing field even between sellers at home and abroad and has enacted legislation that allows HMRC to hold sellers liable for unpaid VAT.

References