How will the new VAT rules affect your business?

From 1st January 2015, the rules regarding VAT on electronic services across the EU are set to change. While it is predicted that these new regulations will be highly profitable for both the government and large businesses, it is important that small businesses are prepared so as not to lose out. While previously, with cross border transactions between business and non VAT or private customers, VAT was charged at the rate of the supplier, it will soon be charged at the rate of the country where the consumer is resident instead. So what effect will this have on you?

Well, if you supply broadcasting, telecommunications and e-services (such as electronic books, apps, video downloads, sat-nav maps, games, software and cloud storage services) to consumers,  you will soon have to make complex changes to the rates at which you supply. Luckily, as a supplier, the changes shouldn’t create any financial problems, however it may generate some book-keeping difficulties. The rates of VAT you charge will now differ depending on the country you are supplying, which makes billing more complicated and will require the cost of additional services such as a chartered accountant or a new billing system in some cases. 

However those who could end up feeling the real negative effects of the changes are consumers. British consumers are likely to notice an increase in the price of their electronic services come January 1st. While the British VAT rate is actually under the European average, the majority of services bought by consumers in the UK are provided by countries such as Luxembourg, where the VAT is much lower. The change will mean that many electronic services will have a noticeable price increase, though these changes should only improve the economy as a whole, meaning that many are regarding the inevitable price increases as a solid investment.

The new rules will be put into action at the start of 2015, but at MCC, we recommend you begin to prepare well in advance. Familiarising yourself with the rules is the best place to start, so as not to hold up any transactions in January due to confusion. If you require any additional help, either to learn more about the regulations or to make sure your billing system is able to cope with the changes, we recommend you contact a chartered accountant. MCC specialise in helping small businesses with their accounts, so give us a call on 0161 707 1500 or send us a message through our contact page.

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