Selling Software to EU customers

The UK has finally left the EU. If you sell software to customers in the EU there are some changes that you will want to make to remain compliant with reporting requirements from 1st January 2021. Thankfully, they are not too onerous and having gone through the process with a number of our customers we are able to provide some pointers on how to get through this new environment.

Business 2 Business sales (B2B)

Let's start with the easy bit. If you make B2B sales to EU customers not much has changed, in fact the rules are actually a bit simpler now.

You can treat B2B software sales to the EU in the same way you would treat B2B software sales to non EU countries such as USA, Japan or China. Basically these sales are no longer in scope of the VAT system. This means that:

• You no longer need to collect the customer's VAT number and state it in the invoice
• You no longer need to file an EC Sales List (yay!)
• If you use Xero you should use the tax rate 'Zero rated income' rather than 'Zero rated EC income'.

If you provide consultancy services alongside your software (such as technical support) this will also fall outside the scope of VAT.

Given that you would have not been charging VAT on these sales prior to 1st January 2021 not much will have changed for you anyway.

Business 2 Consumer sales (B2C)

Here's where things get a little more interesting. If you sell software, or other 'digital services', to consumers within the EU you will most probably have been using the VAT MOSS scheme, unless you were under the threshold of €10,000 EU sales per year.

From 1 January 2021 you will no longer be able to use the VAT MOSS system. This means that:

• You will need to register for the VAT MOSS 'non Union' scheme in another EU country by 10 February. I'd suggest Ireland, unless you like the challenge of dealing with French or German paperwork!
• The minimum threshold of €10,000 no longer applies so you will need to register for VAT MOSS regardless of the value of your EU B2C sales.
• You will be automatically de-registered from the UK VAT MOSS scheme from 1 January and can no longer file VAT MOSS returns in the UK for Q1 2021 onwards (you'll still be able to file the VAT MOSS return for Q4 2020 by 20 January though).

The rules of VAT MOSS have not changed so you still need to determine your customer's location in the normal way and account for the VAT in that location. In terms of your internal procedures and operations, very little will need to change as the data you need to file will remain the same, it will be just be filed to a different EU authority. The deadline for filing and paying VAT MOSS will remain the same (20th of the month following the calendar quarter end).

Registering for VAT MOSS with Ireland

The process of registering for VAT MOSS in Ireland is straightforward and you can begin the process here.

When you reach this screen you will want to enter your 'Tax Reference Number' which is your UK VAT number with a 'GB' prefix, e.g. GB12345678. Your 'Date of first supply' will be any date from 1 January 2021 onwards.

Once registered you will receive a new EU VAT MOSS reference number and you will able to file returns under the new system! Under the Irish VAT MOSS system you are able to set up a direct debit to collect payments (if your bank is SEPA compliant), which is handy as the UK did not have this feature. You'll also be able to set up your accountant as a separate user so that they can submit returns on your behalf.

tl;dr: if you sell software to EU B2B customers then you can continue to not charge VAT. If you sell software to EU B2C customers then you will need to register for VAT MOSS in another EU country (I'd suggest Ireland) and file returns there from Q1 2021 onwards.

If you have any questions or would like to discuss any of these matters in more detail please do not hesitate to get in touch :)