The new rules governing the supplies of telecommunications, broadcasting and electronically supplied services (TBES) come into effect on 1 January 2015.

As a result, VAT will be chargeable at the applicable rate in each of the Member States in which TBES supplies are made.

To ensure compliance, suppliers will either need to register for VAT in every EU member state where TBES supplies are made (up to 27 separate VAT registrations) or make use of an EU-wide accounting system known as the mini one stop shop (MOSS).

Significantly, there is no de-minimis turnover threshold, so registration will be required irrespective of the value of TBES in each member state.

Dr Richard Wilson, TIGA CEO, said: ‘The EU's new VAT regulations will increase costs and compliance burdens on many businesses, including games businesses.

‘Almost 60% of UK studios have four or fewer staff. These businesses do not have the in-house expertise to deal with the administrative burden that the new rules will spawn.

‘To add insult to injury, small start-ups with turnovers of less than £81,000 will not be able to benefit from the MOSS scheme. These small businesses will have to register for UK VAT and account for this on all UK supplies. Pricing structures will therefore need to be amended to either increase prices or reduce profit margins.

‘TIGA recommends that policy makers introduce an exemption to the requirement to either register for VAT in other EU member states or register for MOSS when providing electronically supplied services to private consumers.’

How to comply with the new rules

TIGA warns that the new VAT regulations will increase the regulatory burden on businesses, including games businesses. Studios will need to:

• have systems in place to determine where a customer is based (HMRC will expect studios to have two pieces of evidence to confirm location and if these are contradictory then there will need to be a third);
• implement the right systems to determine whether the supplies are business-to-business or business-to-consumer and ensure that the correct information is collected and kept;
• interpret and comply with obligations and conflicts arising between data protection laws and the record retention requirements arising from the various VAT regimes around the EU;
• continuously monitor transactions for reporting purposes;
• monitor and determine the requirement to register in other EU Member States (and potentially deal with the registration process);
• ensure that distributors, e.g. Apple and Steam, take responsibility for dealing with the VAT on consumer sales, including in-app purchases - if they do not then the responsibility will lie with the studio.

Some small and start-up studios will be unable to benefit from the automated MOSS reporting system unless they register for VAT in the UK. They currently do not have to do this as the UK VAT threshold is based on turnover of £81,000.

These businesses will be required to register and account for VAT in the Member State in which the customer belongs, through a local VAT return.

TIGA has teamed up with Grant Thornton to produce a guide for games businesses to help them prepare for the changes, download here http://www.tiga.org/join-tiga/online-subscribers