New EU VAT rules introduced on 1 January 2025 are now impacting UK businesses providing digital services to consumers in the EU, including virtual events, online courses, and other digital content.
Previously, many digital services were taxed based on the supplier’s location.
Under the new rules, VAT must now be charged at the local rate of the consumer’s EU member state.
This means UK businesses selling digital services to EU consumers must register for VAT in the EU through one of two routes:
- The One Stop Shop (OSS) – This allows businesses to report and pay VAT across all 27 EU member states via a single return.
- Direct VAT registration – Businesses can register in each individual EU country where they have customers. Unlike in the UK, there is no VAT registration threshold, so even small businesses are affected.
For B2B transactions, the rules remain unchanged – VAT is still due where the business customer is based, with the reverse charge mechanism continuing to apply.
The risk of double taxation (or no taxation)
A key concern for UK businesses is the potential for either double taxation or falling through the cracks entirely:
- Double taxation – UK businesses may still have a UK VAT liability in addition to their EU VAT obligations, leading to potential overpayments.
- No taxation – EU businesses selling digital services to UK consumers may not be subject to VAT in either jurisdiction.
While HM Revenue & Customs (HMRC) is aware of these risks, no changes to UK tax law have been confirmed.
How UK businesses should react
To stay compliant with these new VAT rules, UK businesses selling digital services to EU consumers should:
- Review their VAT obligations – Determine whether to register via OSS or for VAT in each EU country where they have customers.
- Assess pricing structures – Decide whether to set prices as VAT-inclusive or VAT-exclusive.
- Update terms and conditions – Ensure contracts reflect the new VAT requirements to avoid compliance issues.
Ensuring your compliance now will help avoid unexpected tax liabilities later, so it’s worth preparing early.
We specialise in helping businesses navigate international tax regulations and our team can assist with VAT registration, compliance, and structuring your pricing strategy to minimise risks.
