VAT & electronically supplied services

The COVID-19 pandemic has certainly changed the way many of us are working and the number of video conferencing facilities and apps has increased to allow remote working to happen easily. However is there a danger that we create a VAT liability?

Some sectors have changed the way they deliver their services. For example, it has been widely reported that a number of educational establishments will no longer be providing face to face lectures. These will instead be provided remotely, available for live streaming or pre-recorded for download as applicable. Paid for education is exempt from VAT when provided in the UK but, with a large number of overseas students currently unable to attend courses in the UK, by not providing face to face education, is there a risk that the delivery method and location of the recipient changes the VAT position?

Electronically supplied services, when provided to individual consumers in the EU (as opposed to businesses) are subject to VAT in the country where the consumer is based. Subject to values this may result in the requirement for the supplier to register for VAT in each country and charge and account for local VAT. For the EU there is a mini one stop shop (MOSS) mechanism which allows a business to register for VAT in one member state and remit the VAT in that state on a single VAT return (but it still covers all member states in the EU). Other, non-EU countries have also started to introduce digital services tax (or similar taxes) which have the same impact but if applicable would require individual VAT registration. They also have different rules whereas the EU has a common VAT system.

Electronically supplied services are e-products which are supplied electronically ie with minimal human intervention. Typically the delivery mechanism is automated. Ringing a person and being sent a PDF by email, for example, would not be defined as being delivered electronically. Downloading a game or film from a website would. E-products include the supply of films and programmes on demand (i.e. streaming) but would not include any live events, such as a live seminar. A pre-recorded lecture would probably be an e-service.

In practice, the VAT position will depend on the circumstances. HMRC advise that an online course consisting of downloadable content which is supported by a live tutor would not be electronically supplied and therefore fall outside these rules but if the whole process is automatic then the position would be different.

One would expect that where such training is provided as part of an established educational course, anticipated to be in the UK but temporarily provided overseas purely as a result of COVID-19 to remain exempt from VAT as they have already been paid for as part of a programme of study. However, if these lectures are provided as stand-alone products or they are anticipated to continue for a period of time there is a risk that the VAT position may change.

This is more relevant if an establishment realises that the digital content has inherent value which can be exploited outside of the current cohort. The VAT position is these cases is likely to be different.

If in doubt please contact your local Kreston Reeves contact or Rupert Moyle, VAT & Duty Partner.