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VAT on Digital Services to Consumers
When you supply digital services like e-books, apps, streaming content or software to consumers, VAT is charged based on where your customer is located, not where your business is based. This means UK businesses may need to charge foreign VAT rates or register overseas, whilst...
# VAT on Digital Services to Consumers
When you supply digital services like e-books, apps, streaming content or software to consumers, VAT is charged based on where your customer is located, not where your business is based. This means UK businesses may need to charge foreign VAT rates or register overseas, whilst non-UK businesses selling to UK consumers must charge UK VAT.
What counts as a digital service
Digital services fall into three main categories for VAT purposes:
Electronically supplied services include:
- Digital images, text, e-books, PDFs and screensavers
- Music, films, games (including gambling games) and programmes on demand
- Online magazines
- Website hosting services
- Software, software updates and distance maintenance of programmes
- Advertising space on websites
Telecommunications services include:
- Fixed and mobile telephone services
- Voice over Internet Protocol (VoIP)
- Voicemail, call waiting, call forwarding and caller identification
- Paging services
- Internet access
Radio and television broadcasting services include:
- Audio and audio-visual content broadcast to the general public on a programme schedule
- Live streaming broadcast simultaneously on the internet and traditional radio or television
What doesn't count as a digital service
Not everything delivered electronically is a digital service for VAT purposes. The following are not covered by these rules:
- Physical goods ordered online (the electronic ordering doesn't make them digital services)
- Physical books, newspapers or journals
- Professional advice from lawyers or financial consultants sent by email
- Booking services for entertainment, hotels or car hire
- Educational courses where content is delivered by a teacher via remote link (such as live webinars)
- Physical computer repair services
- Advertising in newspapers, on posters or television
The 'electronically supplied' test
For a service to be classed as a digital service, it must be delivered automatically over the internet or electronic network with minimal or no human intervention.
This means:
- The content downloads automatically when a consumer clicks 'Buy Now', or
- The consumer receives an automated email containing the content
A small amount of manual processing doesn't change the nature of the supply if it's essentially automatic.
Key examples
A PDF document automatically emailed by your system or downloaded from your website is a digital service.
A PDF document manually emailed by you is not a digital service.
Stock photographs available for automatic download are digital services.
Individually commissioned content (such as bespoke photographs or reports) sent digitally is not a digital service.
An online course with pre-recorded videos and downloadable PDFs is a digital service.
The same course with live tutor support is not a digital service (the human element changes the nature of the supply).
A link to online content sent by manual email is a digital service (the link itself provides automatic access).
Where to charge VAT: the place of supply rules
The location of your consumer determines which country's VAT applies:
If you supply digital services to UK consumers: you must charge UK VAT on those supplies.
If you supply digital services to consumers outside the UK: those supplies are not liable to UK VAT. They may be liable to VAT (or equivalent tax) in the country where the consumer is based.
This applies whether you're a UK business or based overseas.
UK businesses selling to EU consumers
If you supply digital services to consumers in EU member states, the place of supply is where the consumer is located. You must either:
- Register for the Non-Union VAT MOSS scheme in an EU member state, or
- Register for VAT separately in each EU member state where you supply digital services to consumers
The Non-Union MOSS (Mini One Stop Shop) scheme allows you to report and pay VAT for multiple EU countries through a single registration, rather than registering in each country individually.
Non-UK businesses selling to UK consumers
If you're based outside the UK and supply digital services to UK consumers, you must register for UK VAT. There is no minimum threshold for this requirement.
Sales through digital platforms and marketplaces
If you supply digital services to consumers via a third-party platform or marketplace (such as app stores or streaming platforms), the platform itself is responsible for accounting for VAT on the supply, not you.
This means the platform will charge and remit the appropriate VAT, removing this obligation from you as the supplier.
Business or consumer: how to tell
You need to determine whether your customer is a business or a private consumer, as different VAT rules apply to business-to-business supplies.
If your customer does not provide a VAT registration number, you must:
- Treat the supply as business-to-consumer
- Charge the VAT (or equivalent) due in the customer's country
If a customer claims to be a business but cannot provide a VAT registration number (for example, because they're below their country's VAT registration threshold), you can accept other evidence of their business status.
Bundled or mixed supplies
When you supply a package of services, or goods and services together, you must decide whether to treat it as:
- A single bundled supply (taxed as one item), or
- Multiple separate supplies (each taxed according to its own rules)
Examples of bundled supplies include:
- A technical journal with supplementary online content
- A DVD with access to online streaming of the same content
- A music CD with a digital download included
You should apply the normal VAT rules for bundled supplies to determine the correct treatment.
Sources
This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.
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