Developments in digital technology and changes to consumer habits have combined to reduce demand for physical events and develop the trend for organisations delivering their teaching, courses, and conferences via the internet.
This easily accessible online format, allowing suppliers to reach customers worldwide, does however bring new value-added tax considerations. This is because there are different VAT rules for physical and digital services which are not straightforward and which will in addition soon be subject to change.
From recent experience, the implications of moving from physical events to digital equivalents has been one of the most overlooked areas of VAT law and compliance. There are complex rules to manage in order to avoid unexpected VAT costs arising and being on top of these ahead of time will help ensure the right amount of VAT is accounted for.
For the purposes of this article, we will think of the term “events” as including training, webinars, teaching and conferences.
VAT has become a significant headache for these types of services because of how those events can be delivered. With the use of the internet, conferences can be streamed, learning modules provided as pre-recorded webinars, and often courses will have a mix of both, with the teaching utilising ready-made materials alongside live tuition. The way in which the event is delivered changes the VAT position.
We have outlined below three different delivery models that we often see applied.
Internal guidance of the UK tax authority, HM Revenue & Customs, gives an example of admission (which is relevant to physical events) as being tickets to a sporting event or the theatre. The main purpose of buying the admission ticket is to gain entry to the event.
The same guidance deems an event to be characterised by a gathering of people to watch or take part in an activity. Examples given of this include, again, a sports match or the theatre, and it is noted that events are often only supplied for a short or limited duration (but that does not preclude there being a series of individual events on a related theme).
The guidance concludes by saying that a seminar or conference with an educational nature can be an event. Therefore, it is necessary to consider all the factors to hand before determining the character of the supply, to ensure the right VAT rules can be applied.
There are other parts of HMRC’s guidance which suggest an event can be delivered online. However, this is in relation to fundraising, and from a different part of the guidance which may therefore not be capable of being read across to that on education. Given that the guidance in this area is silent on whether something held online is an event for the purposes of these rules, it is generally the case that events held online are treated as supplies of educational services.
To avoid unexpected VAT costs, it is important that organisations identify when an event that is delivered digitally falls into the scope of the ESS rules, as these supplies do not follow the standard place of supply rules.
Supplies which are deemed to be ESS are subject to a specific set of VAT rules. Such services can be broadly identified as those delivered either via the internet or an electronic network that need minimal or no human intervention to deliver them to the end consumer. While many of these supplies can be identified with relative ease (such as the download of a book or music), assessing whether undertakings such as digital conferences and training fall within these rules can be more subjective.
Looking specifically at educational services, very often a supply of education can be made via a pre-recorded session that can be accessed online at any point by a student. This would be an ESS for VAT purposes. This would be in contrast to a course delivered online and live by a tutor which is not an ESS supply for VAT purposes, because there is a significant amount of human intervention. It is worth noting though that the EU’s VAT rules applicable to this are set to change (see more details below).
The standard position for physical events sees the event (whether a conference or training) taxed where the event takes place, regardless of whether it is a B2B or B2C supply. Where educational services are provided in the UK there is then the potential for an education exemption to apply, which could mean that the supply is not subject to VAT (subject to certain conditions being met). Therefore, for physical events this results in a requirement to consider the place of supply, i.e. the location of the event, before the VAT liability can be confirmed – is VAT chargeable or does exemption apply?
These rules change for ESS. B2B supplies would be subject to the general place of supply rules, which means being taxed where the customer is established. B2C supplies of events considered to be ESS are subject to special rules and generally also taxed where the customer belongs (this is the case in the EU, the UK and in almost 100 countries worldwide).
While for B2B supplies it is often the case that the customer will account for the VAT due via a reverse charge, for B2C supplies normally the supplier has to do this. Both positions set out above can therefore result in new VAT registration obligations for suppliers, who will very likely face having to register so as to account for local VAT in territories outside of their home establishment.
It should be noted that currently, the use of the internet to make a supply does not always mean that a supply falls to be characterised as an ESS. There is no definitive list of services that are in scope, and with fast-changing developments in technology leading to new customer delivery/experience models, getting the VAT treatment correct for online events and understanding the obligations that arise before making supplies can be crucial.
UK organisations should be aware that the EU’s position on supplies of live online services is set to change from 2025, to bring it into the scope of the ESS rules. Currently, the UK and EU share the same position, in that live tuition delivered over the internet is not characterised as being an ESS and therefore in the case of B2C supplies the VAT is due where the supplier is established. For most UK suppliers, this means they charge UK VAT at 20% on B2C supplies, subject to the educational exemption not applying. However, the EU’s position will change in 2025 and make supplies of live online services subject to EU VAT where the consumer is based.
Unfortunately, the EU’s rule change has the potential to create double taxation unless there is a change to UK rules for UK businesses making these sorts of supplies to EU consumers. This is because the EU rules will require EU VAT to be accounted for based on the location of the consumer attending the online educational session, but the UK’s rules will apply VAT based on the place where the supplier belongs (which will generally be the UK).
Any UK businesses making supplies to customers based overseas need as a matter of practice to establish the local rules where that customer is resident, in order to know what their obligations will be. For example, where consumers in the EU are supplied, that will mean VAT being due in each different member state in which they reside. One of the main areas that comes to mind here is those within the training and tuition sector who make supplies to overseas students and could find themselves charging local VAT on a supply, irrespective of whether that has been supplied as a pre-recorded or live event.
There are simplifications such as the One-Stop Shop (OSS) that allow a single VAT return to be submitted covering all countries within the EU, preventing numerous registrations for a business being required. Understanding this before starting to make supplies will vastly ease the stress around confirming the VAT to charge, and having to declare and pay it.
For overseas businesses supplying consumers in the UK, simplifications have been removed as a result of Brexit. This ultimately leads to one outcome – a need for a UK VAT registration – and, because non-UK established businesses do not have a threshold to exceed for UK sales before registering, it is almost mandatory. That is unless sales are made via online marketplaces, because in some instances they can become liable to account for the VAT due instead of the supplier.
All organisations involved with providing events, tuition and training need to take care that their supplies are accurately characterised. This is critical, because without this the next steps of understanding the relevant rules, evidence gathering to support the VAT treatment applied, and then ensuring the right information can be captured to calculate the tax due and allow it to be declared, will not be possible.
Organisations should also be aware of where there is a requirement to register for VAT overseas, and whether any simplifications such as the OSS are available. Being able to do this as far ahead of time as possible will help to minimise issues and enable businesses to concentrate on what they do best, rather than worry about tax compliance.
For further information or to discuss how we can help you, please contact Rob Janering or your usual Crowe contact.
This article first appeared on Bloomberg Tax online.
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