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VAT on digital services: A complete Guide for UK sellers
You need to understand how VAT works if you sell digital services to customers in the UK or the EU. Errors could lead to fines, blocked payments, or extra work during audits. Whether you sell software, digital downloads, online courses, or streaming services, you need to know when and where VAT applies as well as how to stay in compliance.
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What counts as a digital service?
- Downloads of software or mobile apps
- Using e-books, digital publications, or guides to stream music, videos, or other media
- Online tutorials or courses
- SaaS platforms, cloud storage, or hosting
- Website templates, graphics, and digital assets
- Virtual tools, online games, or other virtual goods
Who needs to charge VAT on digital services?
Businesses in the UK that sell digital services and have a taxable turnover of more than £90,000 are required to charge VAT. It’s critical to differentiate between customers:
- Business-to-consumer (B2C): The customer’s location determines the VAT charge.
- Business-to-Business (B2B): The reverse charge mechanism is commonly used to account for VAT.
- EU consumers: You must apply the local VAT rate of each EU country or work with a VAT representative if required.
Differentiating between customers is essential. Use our complete checklist to ensure complete Making Tax Digital (MTD) compliance.
Post-Brexit rules for UK sellers
After Brexit, UK businesses can’t use the EU VAT MOSS system anymore. Before 2021, this system enabled UK sellers to report EU digital sales through HMRC. After Brexit, you need to either:
- Register for VAT in each EU country you sell to
- Use the EU One Stop Shop (OSS) if you qualify and have a representative
Failing to register correctly can lead to compliance issues, fines, or blocked accounts on marketplaces.
VAT rates for digital services
| Country | Standard VAT rate |
|---|---|
| Germany | 19% |
| France | 20% |
| Ireland | 23% |
| Sweden | 25% |
| Netherlands | 21% |
Do digital platforms handle VAT for you?
- Amazon, Google Play, and Apple are usually considered the “deemed supplier” and handle VAT automatically.
- If you sell through Shopify, WooCommerce, or Gumroad, VAT responsibility usually stays with you.
VAT invoicing rules for digital services
- UK or EU customers
- Sales above the VAT threshold
- Your VAT number
- Location of the client
- The amount of VAT charged
- A description of the digital good or service
Keeping digital VAT records
- Date and time of sale
- Customer location (billing address, IP address, or SIM location)
- VAT charged
- Currency used
Common mistakes to avoid
Many businesses make simple mistakes that lead to fines or penalties. Common errors include:
- Charging UK VAT instead of the customer’s local rate
- Failing to register for VAT in other countries where required
- Mixing up B2C and B2B VAT rules
- Missing invoice details required by law
- Using platforms only to manage VAT without any verification
If you sell to customers in other EU countries without the required registration, you risk fines as well. Use reliable VAT filing software to avoid this.
Penalties for non-compliance
HMRC can issue fines or penalties if VAT is filed late or applied incorrectly. Penalties could consist of:
- Penalties for incomplete or inaccurate filings
- Interest charged for late payments
- A higher probability of audits
You risk fines as well if you sell to clients in other EU countries without the necessary registration.
Tips for staying compliant
- Always check the customer’s country before applying VAT
- Keep digital records for at least 6 years
- Understand B2B vs B2C rules
- Review invoices and submissions regularly
- Use MTD-compliant tools or accounting software to reduce mistakes
Final thoughts
You can’t ignore VAT on digital services. Depending on what you’re selling, where your customer is, and how you sell it, the rules are different. When necessary, register for VAT, issue accurate invoices, and maintain accurate digital records. Verify how VAT is handled and maintain your own records even if you sell through platforms or marketplaces.
You can avoid errors, penalties, and additional stress by maintaining organisation. You can focus on running your business rather than worrying about compliance when you understand tools for VAT online filing. However, the most crucial step is still understanding how to simplify keeping track of your records.
Disclaimer: Our blogs and articles are written to share general information only. If you’re looking for an easy way to submit your VAT under Making Tax Digital (MTD), SwiftVATPro offers a simple and reliable online solution.
Frequently Asked Questions:
Your Questions – Answered ,We’re here to help you with anything VAT-related.
1. What is considered a digital service for VAT purposes?
Digital services are products or services delivered online with very little manual input. This includes things like cloud storage, SaaS tools, downloadable software, eBooks, online courses, streaming media, website templates, graphics, and other virtual assets.
Under UK and EU VAT rules, these are called “electronically supplied services.” If you sell to consumers (B2C) in the UK or EU, you generally need to charge VAT based on where the customer is located, not where your business is.
For business-to-business (B2B) sales, the rules are different, often using the reverse charge mechanism where the buyer accounts for VAT. Knowing exactly what counts as a digital service helps you apply the right VAT, avoid fines, and make sure your business stays compliant without overpaying or undercharging VAT.
2. Do UK sellers need to register for VAT in the EU after Brexit?
Since Brexit, UK businesses can no longer use the EU VAT MOSS system. This means if you sell digital services to consumers in EU countries, you may need to register for VAT in each country where your customers live. Alternatively, if you meet the criteria, you can use the EU One Stop Shop (OSS) through a local representative.
Incorrect registration can lead to fines, blocked payments, and compliance issues. The rules depend on whether you’re selling B2C or B2B. For B2C sales, you need to charge local VAT in each country, whereas B2B often uses the reverse charge.
Many businesses choose to work with a VAT specialist or use software to manage EU VAT obligations. Staying on top of registrations ensures you remain compliant and avoid unnecessary stress or penalties.
3. What are the VAT thresholds and rates for selling digital services?
In the UK, businesses must charge VAT on digital services once their taxable turnover exceeds £90,000. For EU customers, there isn’t a single threshold; you need to consider each country’s rules. VAT rates vary across Europe.
For example, Germany is 19%, France is 20%, Ireland is 23%, Sweden is 25%, and the Netherlands is 21%. You must charge the rate that applies in the customer’s country rather than the UK rate. If selling through platforms like Amazon, Apple, or Google, they may handle VAT for you.
but if you sell independently via Shopify or WooCommerce, you are responsible. Keeping track of thresholds and rates helps prevent errors, fines, or overcharging, and ensures that your business stays compliant no matter where your customers are located.
4. Do I need to issue VAT invoices for digital services?
Yes, in most cases, you must issue VAT invoices for digital services if your platform doesn’t handle VAT for you. Invoices should include your VAT number, customer location, VAT charged, and a description of the service or product.
This applies to sales above the VAT threshold in the UK or EU. Accurate invoices are critical for compliance and auditing purposes. Even if your digital marketplace handles VAT, keeping your own records is essential.
Digital records should show the date and time of sale, the customer’s location, VAT applied, and currency used. Maintaining clear invoices ensures transparency, makes audits easier, and reduces the chance of penalties for missing information or incorrect VAT.
5. What are the risks of not handling VAT correctly?
Getting VAT wrong can be costly. HMRC can issue fines for late, missing, or incorrect VAT submissions. You may also face interest on late payments. For EU sales, failure to register or apply the correct VAT can lead to penalties from local Tax authorities, blocked accounts, or even restrictions on selling via marketplaces.
Over time, repeated errors can increase audit scrutiny and damage your compliance record. Using the wrong rates, mixing up B2B and B2C rules, or failing to maintain proper invoices and records all increase your risk.
Correct VAT handling keeps your business protected, ensures smooth operations, and prevents fines or legal issues. Proper planning, software, and record-keeping are key to staying compliant without adding stress to your workflow.