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UK challenges 2015 B2C e-VAT changes for micro businesses

  • Mar 18, 2015 | Richard Asquith

UK challenges 2015 B2C e-VAT changes for micro businesses

The UK’s Prime Minister, David Cameron, is to push next week for an exemption for micro businesses to 2015 changes to B2C digital services VAT rules. He is planning to request the European Commission (EC) to allow businesses below the UK VAT registration threshold to not have to VAT register under the EU place of supply reforms.

The changes were designed to bring EU VAT on consumer electronic services sales of apps, e-books, streaming video, online journals, subscription to membership and dating websites, music and games into line with other services.

Figures published last month by the EC revealed that the number of companies registering under the 2015 e-services VAT rules across the EU was only 7,000.  The anticipated number of EU companies needing to register on the Mini One Stop Shop MOSS VAT portal was over 1m, with over 200,000 expected to come from the UK alone.  A mere 500 non-EU companies registered.

2015 e-services VAT

From 1 January 2015, digital services providers must charge the VAT rate of their EU consumers’ country of residence – previously it had been the VAT rate of their own country. In the UK, where the VAT registration threshold is £81,000 (UK VAT registration threshold rising to £82,000 April 2015) this meant micro businesses under this threshold are having to obtain a VAT number for the first time into order to report EU VAT sales through the Mini One-Stop-Shop for the first time. The UK had given an exemption on UK digital sales to small businesses.

In other EU countries, the EU VAT registration threshold ranges between nil and €15,000 per annum.

Luxembourg losses vs UK gains

In the past, many of the largest providers of e-services had based themselves in Luxembourg so that they could charge EU consumers anywhere in Europe just 15% Luxembourg VAT – the lowest in the EU.  E-books were charged at just 3% reduced Luxembourg VAT.  The European Court of Justice ruled this month that all EU countries must charge full VAT on e-books.

As a result of the changes, the UK is set to gain £300m per annum. But Luxembourg will lose €1.1 billion VAT. Luxembourg has secured compensatory parachute VAT payments of €1.1 billion from other member state.


VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is the former VP Global Indirect Tax at Avalara