VAT Rules for Digital Service Providers: What You Need to Know
As the digital economy grows, more businesses are offering services online—whether it's streaming media, downloadable software, online courses, or mobile apps. If you’re a UK-based digital service provider, understanding the VAT rules that apply to your business is crucial to stay compliant and avoid penalties.
In this article, we’ll break down the key VAT rules for digital service providers operating within and outside the UK.
What Are Digital Services?
Digital services (also called “electronically supplied services”) include any services delivered over the internet or through an electronic network with minimal human intervention. Examples include:
Streaming video or music
Downloadable software or e-books
Online gaming or gambling
Cloud computing services
Mobile apps
Online courses or webinars (automated or pre-recorded)
VAT on Digital Services: UK and Overseas Sales
1. Selling Digital Services to UK Customers
If you’re a UK business selling digital services to UK consumers (non-business customers), you must charge UK VAT at the standard rate (currently 20%). You’ll need to register for VAT if your taxable turnover exceeds the £90,000 threshold (as of April 2024), or voluntarily register if you're below the threshold.
2. Selling to EU Consumers
Post-Brexit, the UK is no longer part of the EU VAT MOSS (Mini One Stop Shop) scheme. If you sell digital services to EU non-business customers, you must:
Register for VAT in each EU country where your customers are located, or
Use the Non-Union OSS scheme (One Stop Shop) through an EU member state to simplify compliance.
You’ll charge local VAT at the rate of the customer’s country.
3. Selling to EU Businesses
If you’re selling to a VAT-registered business in the EU, you generally don’t charge VAT, but the customer must account for it using the reverse charge mechanism. Keep evidence that your customer is a business, such as their valid VAT number.
4. Selling to Non-EU Countries
Sales to customers outside the UK and EU are generally outside the scope of UK VAT, but you should keep evidence that the sale qualifies as such. However, local VAT rules may apply in the buyer’s country.
Key Considerations for Digital Service Providers
✅ Determine Customer Location
VAT treatment depends on whether your customer is a business or consumer, and where they’re based. You’ll need to gather two pieces of non-conflicting evidence to prove a customer’s location (e.g., billing address and IP address).
✅ Keep Good Records
HMRC requires digital service providers to keep VAT records for 10 years, including the evidence used to determine the customer’s location.
✅ Choose the Right VAT Scheme
If you're selling to the EU, consider registering for the Non-Union OSS scheme through an EU country to simplify reporting.
How Barnett & Co Can Help
VAT rules for digital services can be complex and vary depending on where your customers are located. At Barnett & Co Accountants, we help digital service providers:
Register for UK and EU VAT schemes
Maintain compliant VAT records
Submit accurate VAT returns
Avoid unexpected tax bills
Whether you're just launching your digital business or expanding into international markets, we’re here to make VAT compliance simple.
📞 Need help with VAT on digital services?
Contact us today for a free consultation.
