Tax on Digital Goods in the UK

Taxes have been imposed on almost all products whether you buy online or directly from the market. Tax on digital goods has been imposed since 2015 in the UK. Therefore, understanding the mechanism of tax on digital goods is very important for every merchant and buyer.

The Rule for Tax on Digital Goods in the UK

The tax has been imposed on digital goods all across the UK on services and value-added goods acquired through digital means known as digital goods. As per rules in the UK, the merchant is supposed to pay the tax if consumers are buying their goods with the European region from their online stores. The rate of tax is dependent on the location of the country across Europe regardless of the fact that where the store of the merchant is located.

The Impact of Tax on Online Store Owners

The store owners are affected by the tax regulations in case if either of the following cases happens.

1. The store owner is selling digital goods or services which are downloadable such as hosting services, books, music audio, and videos, recorded videos for a specific purpose, and courses, etc.
2. The store owner is selling services or goods to the residents of European countries regardless of the fact whether the store owner is operating from an EU member country or not.

Basics Requirements for Merchants to Comply with New Rules

The following are some basic rules in which all merchants must comply with the latest rules.

1. The location of the customer must be identified.
2. The accurate tax must be calculated based on the location of the customer.
3. The location of the customer must be saved in 2 separate pieces for evidence e.g. IP address and billing address.
4. The quarterly Tax return must be submitted to each EU member country from where customers belong. This can also be achieved through an automated way known as Mini-One-Stop-Shop (MOSS) which reports to respective EU member country authorities on a quarterly basis based on sales.

Complying with Tax Rules for Digital Goods

The following is information that a merchant must know for selling digital goods and services in the UK to the EU and other countries.

1. The merchant must have a MOSS registration and have a valid Tax ID. If the merchant is an EU member country resident then must possess a Tax ID through which MOSS registration is an easy task. In case of merchant doesn’t have a valid Tax ID and operating business outside the EU member country then it is a must choose an EU country for identification. UK resident merchants can have MOSS registration through their UK Tax ID.
2. The merchants must submit quarterly business reports through MOSS by an electronic means even in case if they didn’t sell any digital goods. The MOSS Tax returns must be submitted within 20 days of the end of each quarter.