How to determine the place of supply and taxation
For VAT purposes the place of supply rules set a common framework for deciding in which country a transaction should be subject to tax.
For supplies of cross-border digital services to non-business consumers you should check:
The place of supply of digital services
If you are a business making supplies of digital services to UK consumers, those supplies are liable to UK VAT. If you make supplies of digital services to consumers outside the UK these are not liable to UK VAT. They may be liable to VAT in the country where the consumer is based.
If you supply digital services to consumers via a third party platform or marketplace, the digital platform is responsible for accounting for VAT on the supply instead of you.
If your supplies are liable to UK VAT you will need to register for UK VAT if you are based outside the UK.
VAT accounting options for UK businesses supplying digital services to consumers in the EU
The place of supply will be where the consumer is located. You must either:
- register for the Non-Union VAT MOSS scheme in an EU member state
- register for VAT in each EU member state where you supply digital services to consumers
Defining digital services
Radio and television broadcasting services
These include:
- the supply of audio and audio-visual content for simultaneous listening or viewing by the general public on the basis of a programme schedule by a person that has editorial responsibility
- live streaming through the internet if broadcast at the same time as transmission by radio or television
Telecommunications services
This means transmission of signals of any nature by wire, optical, electromagnetic or other system and includes:
- fixed and mobile telephone services for the transmission and switching of voice, data and video, including telephone services with an imaging component, otherwise known as videophone services
- telephone services given through the internet, including Voice over Internet Protocol (VoIP)
- voice mail, call waiting, call forwarding, caller identification, 3-way calling and other call management services
- paging services
- access to the internet
It does not cover services just given over the telephone, such as call centre helpdesk services.
Electronically supplied services
These rules only apply to e-services that you supply electronically and includes things like:
- supplies of images or text, such as photos, screensavers, e-books and other digitised documents, for example, PDF files
- supplies of music, films and games, including games of chance and gambling games, and programmes on demand
- online magazines
- website supply or web hosting services
- distance maintenance of programmes and equipment
- supplies of software and software updates
- advertising space on a website
Services not affected by these rules
Using the internet, or some electronic means of communication, just to communicate or facilitate trading does not always mean that a business is supplying e-services. Using the internet for the following does not count:
- supplies of goods, where the order and processing is done electronically
- supplies of physical books, newsletters, newspapers or journals
- services of lawyers and financial consultants who advise clients through email
- booking services or tickets to entertainment events, hotel accommodation or car hire
- educational or professional courses, where the content is delivered by a teacher over the internet or an electronic network (in other words, using a remote link)
- offline physical repair services of computer equipment
- advertising services in newspapers, on posters and on television
Definition of ‘electronically supplied’
This covers e-services which are automatically delivered over the internet, or an electronic network, where there’s minimal or no human intervention. This can be either:
- where the sale of the digital content is entirely automatic, for example, a consumer clicks the ‘Buy Now’ button on a website and either the:
- content downloads onto the consumer’s device
- consumer gets an automated email containing the content
- where the sale of the digital content is essentially automatic, and the small amount of manual process involved does not change the nature of the supply from an e-service
All e-services that are electronically supplied in these ways are digital services.
Examples of electronic supplies and whether or not they’re ‘digital services’
| Service | e-service | Electronically supplied | Covered by these rules |
|---|---|---|---|
| PDF document manually emailed by seller | Yes | No | No |
| PDF document automatically emailed by seller’s system | Yes | Yes | Yes |
| PDF document automatically downloaded from site | Yes | Yes | Yes |
| Stock photographs available for automatic download | Yes | Yes | Yes |
| Live webinar | No | No | No |
| Online course consisting of pre-recorded videos and downloadable PDFs | Yes | Yes | Yes |
| Online course consisting of pre-recorded videos and downloadable PDFs plus support from a live tutor | Yes | No | No |
| Individually commissioned content sent in digital form, for example, photographs, reports, medical results | Yes | No | No |
| Link to online content or download sent by manual email | Yes | Yes | Yes |
This is a fast-changing area. These examples do not give a comprehensive and definitive list of what’s considered to be a digital service. If you’re not sure if your supplies are digital services, contact HMRC.
Bundled or multiple supplies
If you supply a package of services, or goods and services, you’ll have to decide whether the complete package should be considered and taxed as a single (bundled) supply, or taxed as multiple separate supplies.
Examples of a bundled supply include a:
- technical journal with supplementary online content
- DVD with access to online streaming of content
- music CD with digital download
A digital supplier must apply the normal approach to bundled or packaged supplies. Read more technical guidance about VAT Supply and Consideration.
How to determine whether your customer is a business (taxable person) or is a private consumer
If you supply digital services and your customer does not give you a VAT registration number, you should:
- treat it as a business-to-consumer supply
- charge the VAT (or equivalent) due in the customer’s country
If a customer cannot supply a VAT registration number but claims they’re in business but not VAT registered because, for example, they’re below their country’s VAT registration threshold, you can accept other evidence of your customer’s business status. For example, a link to the customer’s business website or other commercial documents.
It’s your decision whether to accept alternative evidence that the customer is in business and your customer cannot ask you to treat a supply as business-to-business if they have not given a valid VAT registration number.
If you accept that your customer is in business, the supply does not come within the scope of these business-to-consumer arrangements. With a cross-border business-to-business supply the customer will be responsible for accounting for any VAT due to the tax authorities in their country.
How to determine the location of your consumer
The place of supply of cross-border digital services is the consumer’s location, which is determined by where the consumer usually lives.
For example, for a UK expat living in Spain the location would be Spain.
Place of supply ‘presumptions’
To try to simplify the rules for some supplies of digital services, you can make a presumption about the place where the supply is to be taxed.
Where the presumptions apply, you do not need to know in which country the consumer of the digital service resides.
This in turn means that where a digital services supply is made through one of these locations, the business supplying the service does not need to get any additional evidence to justify in which member state the VAT is due.
Types of supplies covered by the presumption rule include where the digital service is supplied:
- through a telephone box, a telephone kiosk, a wifi hotspot, an internet café, a restaurant or a hotel lobby (VAT will be due where those places are actually located, so if a German tourist makes a call from a telephone box in the UK, VAT will be due in the UK)
- on board transport travelling between different countries (VAT will be due in the place of departure, for example, if a ferry operator provides a wifi hotspot on board ship which is available to passengers for a fee, VAT will be due in the place of departure and will not depend on a passenger’s place of residence)
- through a consumer’s telephone landline (VAT is due where the consumer’s landline is located)
- through a mobile phone (the consumer location will be the country code of the SIM card, so if a UK resident downloads an app to their smartphone while on holiday in Italy, VAT will be due in the UK)
- in the country for the postal address where the decoder is located or the viewing card is sent (if a UK resident has a satellite television system in their Spanish holiday home, VAT will be due in Spain)
Circumstances where the presumptions do not apply
When these circumstances do not apply, you must get and keep evidence to show which country your consumer is normally located in.
Examples of the type of supporting evidence that tax authorities will accept include:
- the billing address of your consumer
- the Internet Protocol address of the device used by your consumer
- your consumer’s bank details
- the country code of the SIM card used by your consumer
- the location of your consumer’s fixed landline through which the service is supplied
- other commercially relevant information – for example, product coding information which electronically links the sale to a particular jurisdiction
Businesses using payment service providers
A business which makes cross-border digital service supplies must get and keep 2 pieces of information as evidence of where a consumer normally lives. This shows that the correct rate of VAT has been charged and will be accounted for to the correct tax jurisdiction.
For many micro and small businesses this requirement may be challenging. For micro and small businesses that use payment service providers, try the following approach:
- at the point of sale, ask the consumer for details of either their:
- billing address, including the country
- telephone number, including the country dialling code
- when the consumer pays for the digital service, you’ll need to get from the payment service provider a notification advice containing the 2-digit country code of the consumer’s country of residence as listed in their records
If the 2 pieces of information match, that’ll be enough to define the consumer’s location and you can record the details in your accounting records. If the information does not match, you must contact the consumer and ask them to resolve the discrepancy between the 2 pieces of information.
Place of supply of educational services
Applying the place of supply rules to educational services can sometimes be confusing. We’ve given the following examples so that UK businesses can establish how to consider and tax these services.
Services given by a person
Education, training, or a similar service delivered by a person over the internet or an electronic network (such as a webinar), is not considered to be an electronically supplied service because an actual person is involved in the delivery. These services are not within the scope of this guidance.
Services given through automated learning
Automated learning does not have human involvement and is therefore a digital service.
Educational examination services
The place of supply for educational examination services, for example, marking or assessing completed examination papers, will depend on whether or not the service needs or involves any human intervention.
For example, a digital service is where a student must complete and submit an online examination paper which is automatically checked and scored by computer. But, if the service involves the completed examination paper being marked by an assessor, it will not be a digital service covered by the rules. The place of taxation will be the place where the service is performed.
This table shows examples of typical supplies of business-to-consumer education or examination services, and the place where the supply is to be taxed.
| Type of examination service | Business-to-consumer rules from 1 January 2015 |
|---|---|
| Admission to event (not an e-service) | Where event takes place |
| Distance learning using webinars or remote tutors (not an e-service) | Supplier’s place of establishment |
| Automated learning (no human involvement) (e-service) | Consumer’s address or residence |
| Examination services – human involvement | Education where performed |
| Examination services – automated | Consumer’s address or residence |
Digital portals, platforms, gateways and marketplaces
If you supply e-services to consumers through an internet portal, gateway or marketplace, you need to determine whether you’re making the supply to the consumer, or to the platform operator.
The platform operator is supplying the consumer if the platform operator identified you as the seller but, sets the general terms and conditions, authorises payment or handles delivery or download of the digital service. Then the platform operator would be responsible for accounting for the VAT payment that’s charged to the consumer.
Digital platforms and accounting for VAT
If you operate a digital platform that third-parties sell e-services through, you’re liable to account for the VAT on those sales unless you meet all of the following conditions:
- digital platforms and everyone else involved in the supply must identify who the supplier is in their contractual arrangements
- invoices, bills or sales receipts must identify that supplier and the service supplied
- digital platforms must not:
- authorise the charge to the consumer
- authorise the delivery
- set the general terms and conditions of the sale
If you do not meet all these conditions:
- you must treat the sales of third-party e-services as if they were your own
- you must declare any VAT that is due
- the responsibility for accounting for any VAT moves back to the person who supplied you if you’re giving intermediary services to that person
How to clarify your status
Because of these conditions the vast majority of digital platforms will be liable to account for the VAT on the third party sales. But if you’re unsure about your responsibility, read the guidance about non-statutory clearances.
Role of payment services
If your only role in the supply is to provide for the processing of payments you’re not regarded as a digital platform and you do not have to account for the VAT.
