Government to see potential rise in revenues of £300 million

Government to see potential rise in revenues

New 2015 VAT rules are likely to require larger requirements for data storage, compliance and advisors for the changes to be implemented

Also on

  • Changes to rules could mean significant cost hike for SMEs
  • Potential jump in prices for consumers as low-cost tax jurisdictions become redundant

As reported in the recent March budget, the full effects of the upcoming VAT changes across the EU are becoming apparent, as it’s said the Government could pocket in the region of £300m in revenues whilst SMEs are set to feel the squeeze as costs to comply with the latest set of regulations rise, according to KPMG.

New VAT rules taking effect from the beginning of 2015, but which companies are having to prepare for now, are likely to require larger requirements for data storage, compliance and advisors in order to implement the changes set by the EU.

From 1 January 2015 VAT on telecommunications, broadcasting or electronically supplied services to non-VAT registered or private customers will no longer be charged according to the country from where the supply is made but according to where the customer is resident.  Electronically supplied services include electronic books, apps, video downloads, sat-nav maps, games, software and cloud storage services to the extent that they are paid-for services delivered to consumers over the internet or through other electronic media.

Affected businesses, particularly SMEs, will need to carefully consider what impact the changes will have on them. “Many have been discussing the impact of these changes on the large corporations, but people have been failing to realise the effect on SME’s. It is these companies which will feel the pressure of the changes the most and although it seems as though the changes may be easy to implement, it isn’t as straight forward as it appears. There is a huge amount for them to plan for in a relatively short amount of time”

“At the very least, they need to ensure that their billing systems can cope,” says Mike Camburn, tax partner at KPMG in the UK.  “A full analysis of where the sales are being made, how that will impact the margins in the various countries and how best to handle compliance with the new rules is a good start.”

Businesses will have to charge different rates of VAT according to where their customers are based in the EU rather than a single rate based on the country from which they are making the supply, and therefore face an increased compliance burden and billing becomes more difficult to manage.  Both of these are likely to increase their costs, according to KPMG. 

Customers are also expected to feel the negative side effects to these changes as VAT charges rise, so too will the price of buying the product.

Mike Camburn continues: “Although the UK VAT rate of 20 percent is actually just below the current EU average, many UK customers will still see the VAT charged on their purchases jump up.  This is because many of these e-services are currently supplied from countries such as Luxembourg where the VAT rate is very low: 15 percent in general and just 3 percent for downloaded books.  The UK Treasury will gain, but someone has to lose; either the suppliers of affected services will see significantly reduced profit or consumers will see increased prices as some of the extra VAT cost is passed on.”

The table below illustrates the likely impact of the VAT rule changes to a UK consumer, assuming that the tax is passed on in its entirety:


Current example of UK price per download (including Luxembourg VAT)

Luxembourg VAT rates

Price from 2015 once UK VAT applied

UK VAT rate*

Comparative price increase to UK consumers from 1 January 2015**

Song download












Smartphone App






Antivirus 12 month software






*Assuming UK standard VAT rate is 20% on 1 January 2015.

**Assuming prices increase in line with the VAT changes. NB - many other factors influence pricing and suppliers may choose to absorb the costs or increase prices gradually.

More information on the changes to the VAT system



For further information please contact:

Louisa Feltes, FTI Consulting

T: +44 (0) 203 727 1166


Ellie Fixter, FTI Consulting

T: 020 3727 1170



Twitter: @kpmguk

KPMG Press Office: 0207 694 8773


About KPMG

KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with approximately 11,500 partners and staff.  The UK firm recorded a turnover of £1.8 billion in the year ended September 2013. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 155,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.

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