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Reading Brace for Brexit over and over again

Is the service provided vatable?

Didn't find your answer?

The advice in Brace for Brexit is that B2B services are outside of scope. But there are exceptions such as the Use and Enjoyment rules.

My client based in the UK is going to produce a movie for a school in Poland (school funded by the Polish government)

Finally the HMRC website says the following:

2.5 Selling digital services to and from the EU

UK businesses will no longer be able to use the VAT MOSS system in the UK and the current EU-wide VAT threshold for supplies of digital services to consumers will cease to apply to UK businesses. This means that EU VAT will be due on all supplies of digital services to EU consumers, regardless of the value of the sales.

 

Therefore am I right in thinking that my client must charge EU VAT to the school (which is a consumer rather than a business since it's funded by the government). And even if the school was a business for VAT purposes my client would still have to charge EU VAT since the transaction falls under the Use and Enjoyment rules?

It's lucky I don't have to deal with those things as a general rule in my practice because I really struggle to get it.

I would appreciate some advice please.

Replies (7)

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paddle steamer
By DJKL
29th Sep 2021 14:45

Is the supply actually digital services?

You say produce, what does that actually mean in this context?

What precisely is being sold?

Where is the thing that is being sold being made?

In what medium is the finished item being supplied, how is it being delivered?

Does the buyer get to own what is "produced", with all rights of ownership, or are they merely buying the right to use?

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Replying to DJKL:
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By Cylhia66
29th Sep 2021 15:23

DJKL my answers are below:

Is the supply actually digital services?
I'm doubting myself now. It's certainly not a broadcasting service. It's an interactive movie.

You say produce, what does that actually mean in this context?
My client will produce/create the movie himself with his advanced knowledge of technology.

What precisely is being sold?
An interactive movie.

Where is the thing that is being sold being made?
In my client's office in the UK.

In what medium is the finished item being supplied, how is it being delivered?
I don't know the answer. I emailed my client to ask him.

Does the buyer get to own what is "produced", with all rights of ownership, or are they merely buying the right to use?
Same thing. I asked my client as I don't know.

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Replying to Cylhia66:
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By Cylhia66
29th Sep 2021 15:49

DJKL further answers:

In what medium is the finished item being supplied, how is it being delivered?
It will be a video file that my client will send to the film school server based in Poland.

Does the buyer get to own what is "produced", with all rights of ownership, or are they merely buying the right to use?
Legally the client is the producer so they retain the rights to explore it financially. But my client keeps the author's copyright.

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Jason Croke
By Jason Croke
29th Sep 2021 16:05

MOSS is for the supply of a digital service. So Netflix streaming a movie, a music track on Spotify, paying for and downloading a .pdf book, etc.

So when your client invoices the Polish school, what will the invoice be for/what does the contract say?

Is the invoice going to be to film, produce, edit and deliver a finished movie which will be distributed to the Polish school via a digital download? You say its an interactive movie, not sure what that is but i suspect it will be the key to the answer.

If it is say an interactive video you watch on a browser/internet and click at things on the screen to interact with what is on the screen, then the ultimate supply here may well be a digital download (rather than a use and enjoyment type activity). Even if it is just a download from your clients server to the customers computer, its still a digital service in my view/based on what we know so far.

The digital services rules only apply to sales to consumers (B2C), HMRC guidance here https://www.gov.uk/guidance/the-vat-rules-if-you-supply-digital-services... says if the customer cannot provide their EU VAT number then you treat as if a consumer, unless the customer can provide other forms of evidence that they are in business. if this were a UK state funded school or Academy, the default would be they are non-business as they do not charge for education, but on saying that many UK Academies are VAT registered because they make taxable sales such as catering/school meals, hiring of the sports facilities to others, etc and so I'd argue a school isn't automatically not in business. Maybe the schools website might give an indication as to whether they rent facilities or have other income like catering, selling uniforms, etc.

If you assume they are not in business, and we're happy that the contract is to supply a digital film, then MOSS would apply, you'd need to register for VAT in an EU Country like Ireland, charge Polish VAT and declare it on your MOSS return.

With more details, it may be possible to shift the customer to be "business" and then the issue resolves itself, a B2B supply of services, place of supply is where the customer is, no UK VAT applicable, polish customer accounts for VAT their end.

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paddle steamer
By DJKL
29th Sep 2021 16:12

Should have asked, is the movie educational (say filmed tuition) or is it for another purpose?

You really needs someone who knows what they are talking about re vat answering you. Edit- I see you now have Jason.

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By Cylhia66
29th Sep 2021 16:46

Thank you so much both of you for taking the time to clarify all this.
Thanks to your help I think I got to the bottom of this.
You said Jason the reasons why you think this is a digital supply and I agree with you. It's a digital file that is being sold. One thing established.
Then, my client mentioned yesterday that this school is VAT registered. Meaning, as you suggested again Jason, that they are probably selling various services on site. Therefore we have now established that they are a business.
As a conclusion, this transaction will be out of scope of VAT!

Having said that, I'm still not clear why this transaction doesn't fall under the Use and Enjoyment rules? Could either of you tell me?

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Replying to Cylhia66:
By Duggimon
30th Sep 2021 10:08

Cylhia66 wrote:

Having said that, I'm still not clear why this transaction doesn't fall under the Use and Enjoyment rules? Could either of you tell me?

Your client is sending the item to Poland where it will be used and enjoyed, the same place where it's already deemed to be supplied.

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