Navigating VAT on digital services UK & The Mini One‑Stop Shop (MOSS) Update

The VAT regulations on digital services in the UK have evolved significantly since Brexit. UK businesses now face different compliance requirements when selling digital services to EU consumers.

Digital services to UK consumers remain liable to UK VAT at the standard 20% rate. However, services supplied to consumers outside the UK are not liable to UK VAT but may be subject to foreign VAT requirements.

The landscape changed dramatically after Brexit. UK businesses can no longer use the UK’s MOSS scheme to report VAT on sales of digital services to EU consumers. This shift requires new approaches to VAT compliance.

What is VAT on digital services UK?

Digital services encompass a broad range of electronic offerings. These include software downloads, streaming services, online subscriptions, and digital publications.

Common digital services subject to VAT include:

• Software as a Service (SaaS) platforms
• Mobile applications and games
• E-books and digital publications
• Music and video streaming
• Online advertising services

The standard VAT rate of 20% typically applies to digital services sales. However, certain electronically supplied publications may qualify for zero-rate VAT treatment.

How brexit changed Digital VAT Rules?

Brexit fundamentally altered VAT obligations for UK digital service providers. The changes affect both business-to-business (B2B) and business-to-consumer (B2C) transactions.

B2B transactions remain VAT-applicable at the customer’s location, whilst B2C transactions follow more specific UK rules for digital services. This distinction is crucial for compliance planning.

Pre-Brexit arrangements, specifically the UK-operated MOSS system and EU thresholds, no longer apply to UK businesses. This creates new registration and reporting obligations.

Current VAT Registration Requirements

UK VAT Registration Thresholds

UK businesses must register for VAT once their taxable turnover exceeds £90,000 in any 12-month period. This threshold applies to all taxable supplies, including digital services.

Digital service providers should monitor their turnover carefully. Registration becomes mandatory when crossing the threshold, regardless of business type.

EU VAT Registration Post-Brexit

UK businesses selling digital services to EU consumers now face different requirements. Each EU member state has its own VAT registration thresholds and obligations.

Without access to UK MOSS, businesses must either:

• Register directly in each EU member state where they have customers
• Use the EU’s One Stop Shop (OSS) scheme as a non-EU business

Understanding OSS and IOSS Schemes

One Stop Shop (OSS) for Digital Services

OSS lets EU and non-EU sellers report VAT for cross-border B2C sales with a single registration. This system replaced the old MOSS framework with broader coverage.

The OSS scheme offers several advantages:

• Single registration in one EU member state
• Quarterly returns covering all EU sales
• Simplified VAT compliance across multiple jurisdictions

The EU’s OSS simplifies VAT compliance for non-EU businesses selling goods or digital services to EU consumers. UK businesses can now access this system as non-EU entities.

Import One Stop Shop (IOSS)

The Import One-Stop-Shop (IOSS) simplifies the VAT process for sales under €150 imported into the EU. This scheme primarily applies to goods rather than digital services.

IOSS benefits include:

• Collection of VAT at point of sale
• Eliminates delivery charges for customers
• Monthly returns and payments

Key Differences: OSS vs MOSS

Feature	Old MOSS System	New OSS System
Coverage	Digital services only	All goods and services
UK Access	Available pre-Brexit	Not available post-Brexit
Registration	In home member state	Any EU member state (non-EU)
Return Frequency	Quarterly	Quarterly
Threshold	€10,000	No threshold

Place of Supply Rules for Digital Services

Understanding place of supply rules remains crucial for VAT compliance. These rules determine which country’s VAT applies to transactions.

Business-to-Business (B2B) Supplies

For B2B digital services, the place of supply is where the customer belongs. This follows Article 44 of the EU VAT Directive.

Key requirements include:

• Obtaining valid VAT numbers from EU customers
• Including reverse charge notifications on invoices
• Reporting supplies on EC Sales Lists (where applicable)

Business-to-Consumer (B2C) Supplies

B2C digital services are generally supplied where the consumer resides. From 2025, streamed or digitally available services become taxable where the consumer resides.

This creates obligations to:

• Determine customer location accurately
• Apply correct local VAT rates
• Comply with local registration requirements

VAT Rates Across Europe

European VAT rates vary significantly across member states. This variation affects pricing strategies and compliance obligations.

Standard VAT Rates by Country (2025)

Country	Standard Rate	Digital Services Rate
Luxembourg	17%	17% (3% for e-books)
Hungary	27%	27%
Germany	19%	19%
France	20%	20%
Netherlands	21%	21%
Sweden	25%	25%

These rate differences historically led to “VAT shopping,” where businesses established operations in low-rate jurisdictions. Current rules address this by taxing services where consumers reside.

MOSS VAT Return Requirements

For businesses still operating under transitional arrangements or legacy obligations, understanding MOSS return requirements remains important.

MOSS Return Features

MOSS returns operate on a calendar quarter basis. Returns and payments are due within 20 days of quarter-end.

Key characteristics include:

• Electronic submission through government portals
• National currency reporting requirements
• Automatic distribution to relevant member states

Currency Conversion Rules

When billing in foreign currencies, businesses must convert amounts to their national currency. Acceptable conversion methods include:

• Daily exchange rates
• Quarter-end exchange rates
• ECB published rates

Post-Brexit VAT Compliance Strategies

UK businesses need new strategies for EU VAT compliance. The loss of MOSS access requires alternative approaches.

Option 1: Direct Registration

Businesses can register directly in each EU member state where they have customers. This approach offers maximum control but increases administrative burden.

Benefits include:

• Direct relationship with local tax authorities
• Full control over VAT affairs
• Potential for input VAT recovery

Drawbacks include:

• Multiple registration obligations
• Complex ongoing compliance
• Higher administrative costs

Option 2: OSS Registration

The One Stop Shop provides a simplified way for suppliers to account for VAT on sales to consumers across the EU. UK businesses can access this as non-EU entities.

OSS registration process:

• Choose an EU member state for registration
• Submit single quarterly returns
• Make consolidated VAT payments

Option 3: Local Representation

Some businesses engage local representatives or service providers to handle VAT obligations. This approach can reduce complexity whilst ensuring compliance.

VAT Invoicing Requirements for Digital Services

Proper invoicing remains essential for VAT compliance. Digital service invoices must meet specific requirements.

Mandatory Invoice Elements

All VAT invoices for digital services must include:

• Supplier name and address
• Customer name and address
• Invoice date and number
• Service description
• VAT registration numbers
• VAT amount and rate

Reverse Charge Notifications

Non-resident providers should not charge UK VAT on supplies to UK businesses but should zero-rate under reverse-charge rules. Invoices must clearly state reverse charge obligations.

Standard reverse charge text includes:
“Reverse charge: Customer to account for VAT”
“VAT to be accounted for by the recipient”

Distance Selling Regulations Impact

Distance selling regulations affect how VAT applies to cross-border supplies. These rules establish thresholds below which suppliers can apply their home country VAT rates.

Digital services generally fall outside traditional distance selling rules. However, related physical goods may be subject to these thresholds.

Current Distance Selling Thresholds

The EU eliminated distance selling thresholds for B2C supplies from July 2021. All cross-border B2C supplies now follow destination-based taxation.

This change means:

• No minimum sales thresholds
• Immediate VAT registration requirements
• Simplified compliance through OSS

eCommerce VAT EU Regulations

European eCommerce VAT regulations underwent major reforms. These changes affect all online businesses selling to EU consumers.

Key Reform Elements

The EU eCommerce package introduced several changes:

• Elimination of low-value goods VAT exemption
• New electronic interface obligations
• Enhanced OSS and IOSS schemes

The intrinsic value calculation excludes discrete postage and packaging charges. This affects VAT calculations for bundled offerings.

Electronic Interface Requirements

Digital platforms facilitating sales may have deemed supplier obligations. This applies when actual suppliers aren’t EU-established or VAT registered.

Platform obligations include:

• VAT collection and remittance
• Invoice provision to customers
• Record keeping requirements

VAT for Software Subscriptions and SaaS

Software subscriptions and SaaS platforms face specific VAT considerations. The recurring nature of these services creates ongoing compliance obligations.

Subscription Service Challenges

Key challenges include:

• Customer location tracking
• Rate changes during subscription periods
• Automatic renewal VAT treatment
• Multi-jurisdiction compliance

Best Practice Approaches

Successful SaaS providers implement:

• Robust customer location verification
• Automated VAT rate application
• Regular compliance reviews
• Professional tax advice

VAT Rules for SaaS Providers

SaaS providers must navigate complex international VAT rules. These rules vary by customer type and location.

B2B SaaS Supplies

Business customers typically handle VAT through reverse charge mechanisms. Providers must:

• Verify business status through VAT numbers
• Issue zero-rated invoices with reverse charge notifications
• Maintain proper documentation

B2C SaaS Supplies

Consumer supplies require providers to:

• Register in customer jurisdictions
• Charge local VAT rates
• Submit regular returns and payments

Electronic Services Tax Compliance

Electronic services tax compliance requires systematic approaches. Businesses must establish robust procedures covering all aspects of VAT obligations.

Compliance Framework Elements

Effective compliance frameworks include:

• Customer classification procedures
• Location determination processes
• VAT rate application systems
• Return preparation workflows
• Payment processing controls

Technology Solutions

Many businesses use specialist software to manage VAT compliance. These solutions automate:

• Rate determination
• Invoice generation
• Return preparation
• Payment processing

Common Compliance Challenges

Digital service providers face several common compliance challenges. Understanding these helps businesses prepare effective solutions.

Customer Location Determination

Accurately determining customer location can be complex. Businesses must consider:

• IP address information
• Billing address details
• Payment method locations
• Customer declarations

Rate Management

Managing multiple VAT rates across jurisdictions requires:

• Regular rate monitoring
• System updates for changes
• Historical rate tracking
• Change date management

Return Preparation

Preparing accurate VAT returns involves:

• Transaction categorisation
• Currency conversions
• Rate reconciliations
• Supporting documentation

Future Developments and Changes

VAT rules continue evolving as governments adapt to digital economy challenges. Businesses should monitor developments affecting their obligations.

Potential Changes

Likely future developments include:

• Further rate harmonisation initiatives
• Enhanced digital reporting requirements
• Expanded automatic exchange programmes
• Simplified compliance procedures

Some estimates suggest the UK Digital Services Tax may continue with potential rate increases to 6%. This separate tax applies to large digital platform revenues.

Practical Action Steps for Businesses

Businesses should take concrete steps to ensure VAT compliance for digital services:

Immediate Actions

1. Review current customer base by location
2. Assess VAT registration requirements
3. Evaluate compliance procedures
4. Consider professional advice

Medium-term Planning

1. Implement robust location tracking
2. Establish automated VAT processes
3. Plan for rate changes and updates
4. Develop internal expertise

Long-term Strategy

1. Monitor regulatory developments
2. Assess business model implications
3. Plan for international expansion
4. Invest in compliance technology

Frequently Asked Questions