United Kingdom - Impact of EU “VAT in the Digital Age” proposals on UK/non-EU organisations

The “VAT in the Digital Age package” (ViDA) released by the European Commission on 8 December 2022 is designed to further modernise the EU VAT rules and revise how businesses report VAT (for prior coverage, see the article in the January 2023 issue of Indirect Tax News). These changes could have a significant impact on UK and other non-EU organisations trading with and across the EU in the near future.   

The ViDA proposals consist of three key parts:

Platform economy:

As from 1 January 2025, it is intended that new deemed supplier rules will apply to platforms that support the supply of short-term accommodation rentals (i.e., rentals for up to 45 days) and passenger transport in situations where the underlying supplier does not charge VAT.

Single VAT registration:

  • ​With effect from 1 January 2025, the Commission is proposing the following changes to reduce VAT compliance costs and the administrative burden on cross-border trade within the EU:
    • Second-hand goods supplied under the margin schemes, works of art, collectors’ items and antiques will be subject to distance selling rules making them subject to VAT in the member state of arrival of the goods. If works of art or antiques are not transported or dispatched or if the transport starts and ends in the same member state, the supply will be subject to VAT in the place where the customer is established, has their permanent address or usually resides.
    • The rules on call-off stock arrangements, which currently cause difficulties, will be replaced from 31 December 2024 with transitional arrangements in place. As a result of the wider changes set out above, it should be possible to avoid VAT registration and deal with the reporting of the movement and sales to businesses and consumers in other ways.
    • New rules will apply to platforms so that they are considered the deemed supplier for all supplies of goods within the EU facilitated by them in B2C supplies of goods by EU businesses operating on the platform and B2B supplies.
    • The One Stop Shop (OSS) will be extended to cover B2C supplies of goods, including domestic supplies, installation or assembly supplies, supplies of goods on ships, aircraft or trains, and the supply of gas, electricity, heating and cooling.
    • A mandatory reverse charge will apply to supplies of goods and services for all intra-community B2B supplies where the supplier is not established in the member state in which the VAT is due, the purchaser/recipient is VAT-registered in the relevant member state and the supply does not fall within a margin scheme.

​Real-time digital reporting and e-invoicing:  

  • As from 1 January 2028, the EU proposals would create mandatory e-invoicing and a two working day digital reporting requirement for all intra-community B2B supplies to help mitigate instances of missing trader intra-community VAT fraud.

The reforms proposed represent a significant change to the VAT accounting and reporting rules in the EU and they potentially will impact all organisations trading in the EU even those that are not EU businesses. Despite this, the proposed changes currently appear to have a relatively low profile in non-EU territories, such as the UK, even considering a potentially short timeframe for implementation. The reasons for this low profile are numerous but, given the significant impact of the ViDA measures on some non-EU organisations, businesses should understand the changes and how they may affect their EU operations.

The impact of the ViDA proposals is potentially varied and specific to the nature and operations of each organisation. Some organisations may benefit from new simplifications or a reduction in the number of VAT registrations that are required (lowering the EU VAT compliance burden for them), whereas other organisations may need to prepare for additional reporting/compliance obligations in relatively short order. Those operating platforms, in particular, should expect a significant extension of the VAT accounting obligations that will apply to them.

Although the current timetable for implementation moves at pace, with an expectation of change occurring at the start of 2025 and 2028, there is a still a long road to travel before the changes become reality. Previous experience with EU VAT reform shows that it can take time for the unanimous approval needed to be obtained and there is a prospect of the current proposed timetable slipping. Nevertheless, there does appear to be a genuine will to move forward with reform within the EU to increase tax revenues, reduce the risk of VAT fraud and make the VAT system more fit for purpose in the modern age. As such, affected organisations should be aware that the changes are scheduled to come in quickly, if approved.

UK organisations trading in the EU or with EU-based customers should consider the following:

  • Make sure your understanding of your organisation’s EU profile and operations is up to date. Know your supply chains into and within the EU, as well as your establishment status (i.e., do you have human and technical resources in the EU?) as these are key to determining the impact of the ViDA proposals.
  • Review the proposed changes in detail to understand and map the impact on your organisation. If in doubt, consider consultation with a professional.
  • Monitor changes and any updates to the proposals, such as time frames or implementation details.

BDO recently hosted a webinar to help raise awareness of the ViDA proposals, during which we conducted some polling of attendees, which provided interesting insights into the levels of preparedness and expectations of the impacts of ViDA for the organisations represented on the call. Around 75% of attendees indicated that they expected the e-invoicing and digital reporting changes to have the greatest impact on them, which resonates with what clients have been telling us anecdotally. Additionally, although most attendees did not feel particularly well prepared for the changes at this time, their expectation was that the impact of the proposed changes would either be limited or that they would be able to manage these before implementation given the current timescales.

These are clearly general themes emerging from those attending and will not necessarily represent the views of all affected non-EU organisations. It is safe to expect that some organisations will be significantly impacted by the proposals and will need to go through extensive change projects if the proposals are ultimately enacted in their current form. Equally, it may be that there are many non-EU organisations for whom the changes will have little or no impact. Either way, the overriding message is clear: that organisations should take steps now to assess what the ViDA proposals mean for them because, if implementation does go ahead in line with the current proposals, change will come about very quickly.

Richard Hogg
BDO in United Kingdom