I was contacted by a digital microbusiness seeking advice about a sticky VATMOSS problem. The business sells advertising and promotional packages for special events. Their packages include both online advertising and offline print ads.
We already know that VATMOSS applies to “advertising space on a website“. However, the business was unsure about the VATMOSS status of their ads because they are sold as part of a larger package containing non-digital services. Is VATMOSS due on none of it, all of it, or part of it?
In tax parlance, their offering is called “bundled or multiple supplies.” Here is what the UK’s VATMOSS guidance says about it:
Where a business supplies a consumer with a package of services, or goods and services, the business will have to decide whether the complete package should be considered and taxed as a single (bundled) supply, or multiple separate supplies, each element of which should be separately taxed. Examples of a bundled supply include:
- a technical journal with supplementary online content
- a DVD with access to online streaming of content
- a music CD with digital download
A digital supplier must apply the normal approach to bundled or package supplies. If the business supplies a physical product which is ‘bundled’ with a product that is accessed digitally (for example), the place of supply rule changes will only apply to the digital element of the supply.
For the business, the electronic supply of service VAT is due only on the online advertising portion of their packages. That means they have to tease out the online ads and charge the digital place of supply VAT on them, but only on that item within the package, while charging the regular offline VAT on the rest of the package. To be clear: one transaction, one bundled service, two different VAT rates.
That will be great fun to program into a shopping cart.