1. Place of Supply: Where Is Your Tech Sold?
- B2B (Business-to-Business):
Most services (e.g., bespoke software, consulting, licensing) supplied to VAT-registered businesses abroad are “outside the scope” of UK VAT—the customer self-accounts using the reverse charge. - B2C (Business-to-Consumer):
Digital services (downloads, SaaS, streaming, cloud storage) sold to EU consumers require local VAT—UK suppliers must either register for VAT in each country or use the Non-Union One Stop Shop (OSS) to consolidate EU payments and filings. - Hybrid or complex models:
Mixed customer bases (businesses and consumers, UK and overseas) require careful segmentation and tracking for correct VAT treatment.
2. App Stores, Marketplaces, and “Deemed Supplier” Rules
Major platforms like Apple App Store, Google Play, and Amazon Marketplace increasingly act as “deemed suppliers”:
- They collect and remit VAT for in-app purchases and app sales to customers in their region.
- But: For direct website sales, in-app product add-ons, or commission models, you may still be liable for charging and accounting for VAT.
Practical impact: Tech companies need to analyse every sales channel, contract, and platform agreement to allocate VAT risks and duties.
3. Subscription Services, SaaS and Microtransactions
- Subscription models: VAT is due on the full price, whether the customer is in the UK or EU (local VAT applies for EU B2C).
- In-app purchases/microtransactions: VAT applies to the end-user’s location; marketplace platforms may handle this, but standalone SaaS requires compliance in potentially every EU country reached.
- Freemium, upgrades, and add-ons: The VAT treatment depends on how supplies are bundled—“all in one” v. split out as separate taxable events.
4. Common Tech VAT Pitfalls
- Not registering for OSS or local VAT in target EU countries.
- Misunderstanding place of supply for cloud products—especially where physical servers, customer data, or local technical support are involved.
- Over-claiming input VAT on mixed supplies (e.g., R&D serving both UK and overseas clients).
- Incorrect VAT on royalties, digital licensing, or cross-jurisdiction IP sales.
- Ignoring marketplace “deemed supplier” rules—assuming platforms always cover VAT (they don’t in all cases).
5. Best Practice Strategies for 2025
- Automate VAT calculations: Invest in advanced billing platforms or add-ons that map customer location to correct VAT rate.
- Set up clear audit trails: Maintain country-by-country sales records, platform agreements, and customer VAT numbers for verification and recovery claims.
- Register promptly for OSS: If you sell digital services to EU consumers, using OSS simplifies compliance and reduces registration costs.
- Engage specialist advisors: Consult with VAT experts before new product launches or entering unfamiliar markets.
- Continuous staff and contractor training: Keep your team informed as VAT tech rules evolve, especially within international finance and sales teams.
6. HMRC and EU Guidance to Watch
- HMRC VAT Notices 700/20, 741A, and 700/2 for the UK digital services and SaaS landscape.
- EU VAT reforms in 2025 (ViDA): Expansion of digital-only invoicing, broadened OSS scope, and stricter B2C cross-border rules.
Table: At a Glance—Tech Sector VAT Issues
Area | Potential VAT Issue | Key 2025 Requirement/Opportunity |
|---|---|---|
| SaaS to EU B2C | Local VAT, registration in each EU country—unless OSS used | Register for Non-Union OSS |
| App stores | Marketplace may collect VAT for you—but check direct/commission sales | Audit contracts, confirm “deemed supplier” coverage |
| Hybrid sales | B2B/B2C mix, product bundles | Segregate transactions by customer and supply |
| Royalties/IP | Complex mixed-supply VAT, especially for cross-border licensing | Specialist VAT advice essential |
| Microtransactions | Geographic location hunting for correct VAT rate | Use geo-IP and billing solutions |
Conclusion
For UK tech and software businesses, VAT is both a risk and a strategic opportunity. The right systems, smart contracting, and regular expert check-ins can help turn compliance into a competitive edge—letting you scale with fewer surprises as your offering goes global.
#UKVAT #Technology #Software #SaaS #DigitalServices #TaxCompliance #2025
Sources: HMRC VAT Notices, ICAEW, AccountingWEB UK, VAT specialists for Tech & SaaS, EU Commission OSS and ViDA guidance