Freelancers' Questions: Who owes EU VAT; me or the e-marketplace?
Freelancer’s Question: I’m a freelance web designer doing projects in the EU, many of which I’ve done for an e-marketplace. But recently it turned out that I might be a subject to EU tax authorities’ investigation, as well as thousands of other of the e-marketplace’s contributors.
It turns out that I’m eligible to EU VAT as an author. And the e-marketplace collects and pays this tax for contributors/authors since 2015. But the problem is that I’ve been doing projects since 2013. So who will pay VAT for the two remaining years?
Expert’s Answer: For you to have your specific query solved definitively and with confidence, you should seek appropriately tailored legal and /or tax investigations advice.
However for guidance and background purposes only I can tell you that where an EU business has a revenue stream from selling ‘electronic services’ to private individuals (Business-to-Consumer or 'B2C' revenue), the so-called ‘MOSS’ VAT scheme applies. By using this scheme, it basically means that the business is registered in one location e.g. the UK, but accounts for VAT at the rate applying in the customer’s EU country rather than the UK.
The VAT is accounted for on the special VAT return issued by the UK at the relevant rate and the total tax is paid to the UK. The UK then onward distributes the VAT to the relevant tax authorities overseas. These rules came into force on January 1st 2015 and, prior to that, if the business were in the UK, UK VAT should have been accounted for on such sales. If businesses believe they may have been accounting for VAT incorrectly, it would be advisable to seek professional advice to clarify the position.
Electronic and digital services covered by the January 2015 rules include website development services and the supply of digitised products and content, but as above, the rules only apply where the services are sold directly to consumers. Where the revenue is from business customers, the above rules do not apply.
However it is important for businesses operating on a sub-contract basis or via an online platform, to understand who is selling to the consumer. Only the B2C transaction is subject to the MOSS rules and therefore only one party in the chain will be caught by the rules. The contractual position will be key in determining this and the tax authorities would look at this and any other terms and conditions in place between the various parties (including any consumer-facing website) when determining which party is liable to account for the VAT.
The expert was Julie Park, managing director of the VAT Consultancy.
30th June 2016