VAT on Digital Services for UK Businesses 2026/27: The Complete Guide

HMRC defines digital services (electronically supplied services) as those delivered over the internet or an electronic network, where delivery is essentially automated and requires minimal human intervention. This includes: software and apps (downloads or access), music, films and video streaming, ebooks, online newspapers and digital magazines, online courses and educational content (if automated), cloud computing, website hosting, online marketplaces, and digital advertising. Bespoke consulting delivered online (e.g. live one-to-one tutoring) is generally not a digital service -- the key test is whether human involvement is minimal.

Yes. Digital services sold by a VAT-registered UK business to UK customers (both B2B and B2C) follow standard UK VAT rules. The standard rate is 20%. Some digital services attract reduced or zero rates: ebooks, online newspapers, and online academic journals supplied to UK consumers carry 0% VAT since May 2020. Standard-rated examples include software subscriptions, music/video streaming, and most online courses. If your UK digital services turnover exceeds £90,000 in any 12-month period, VAT registration is compulsory.

Before Brexit, UK businesses could use the EU's Mini One Stop Shop (MOSS) to report and pay VAT across all EU member states in one return. After Brexit, UK businesses lost access to EU MOSS. Now, a UK business selling digital services B2C to EU customers must either: (a) register for the EU's Import One Stop Shop (IOSS) if selling goods, or the OSS (One Stop Shop) for services -- this covers all 27 EU states in one return -- or (b) register for VAT individually in each EU country where they have customers above that country's threshold. The OSS is by far the simpler option for most UK businesses with EU B2C sales.

The distinction matters enormously for cross-border sales. B2B (business to business): the place of supply is where the customer (business) is established. For a UK business selling software to a French VAT-registered company, the place of supply is France, and the French business accounts for VAT via reverse charge -- the UK supplier does not charge VAT. B2C (business to consumer): the place of supply for digital services is where the customer lives. A UK business selling an online course to a private individual in Germany must account for German VAT on that sale.

No -- the EU's One Stop Shop (OSS) simplifies this significantly. By registering for OSS in one EU member state (usually Ireland is chosen by UK businesses for English-language convenience), you can report and pay VAT on all your EU B2C digital service sales in a single quarterly return, applying each country's local VAT rate. You do not need to register individually in each country. If your total EU B2C sales are below EUR 10,000 per year, you may be able to charge your home country's VAT rate instead, but as a UK business there is no longer a home country within the EU.

The compulsory VAT registration threshold remains £90,000 of taxable turnover in any rolling 12-month period for 2026/27. Once you exceed this, you must register within 30 days and begin charging VAT from the date you should have been registered. For digital services with overseas customers, note that UK VAT registration is triggered by UK taxable turnover -- overseas sales may not count towards the £90,000 threshold depending on the place of supply rules. Voluntary registration is available below the threshold and can be beneficial if you have significant VAT-bearing costs.

Ebooks, digital newspapers, and digital academic journals supplied to UK consumers are zero-rated (0% VAT) following changes introduced in May 2020. However, most online courses remain standard-rated at 20% if they are automated or pre-recorded with minimal human interaction. If the course involves substantial real-time human interaction -- such as live webinars, one-to-one tutoring, or instructor feedback -- HMRC may treat it as an educational service rather than a digital service, potentially attracting the education exemption. The distinction is not always clear and HMRC's detailed guidance should be consulted.

For UK customers: charge 20% UK VAT if you are VAT-registered. For EU B2B customers (VAT-registered businesses): zero-rate the supply and let them account for VAT via reverse charge. For EU B2C customers (private individuals): charge the VAT rate of the customer's member state -- use the EU OSS to report and remit. For example, a French consumer paying EUR 100 for a course would be charged EUR 120 (20% French VAT rate). You report that EUR 20 via OSS to France. Ensure you collect sufficient evidence (two non-contradictory pieces) of the customer's location to determine the correct VAT rate.

This is a common mistake post-Brexit. If you charge 20% UK VAT to an EU consumer on a digital service, you have collected tax that you owe to HMRC -- but you may still owe the EU country's VAT on the same transaction. EU tax authorities have access to data from UK digital platforms and exchanges and actively pursue non-compliant businesses. The risk is double taxation and penalties. Correct this by reviewing your billing system to identify the customer's location and adjusting the VAT charged accordingly.

Yes. Cloud computing, Software as a Service (SaaS), Platform as a Service (PaaS), and Infrastructure as a Service (IaaS) are all standard-rated digital services at 20% in the UK. B2B sales to UK VAT-registered customers: charge 20% (or use the VAT domestic reverse charge if applicable in your sector). B2C sales to UK consumers: charge 20%. Sales to overseas businesses: generally zero-rated with the reverse charge applying in the customer's country. The key for SaaS businesses is ensuring invoices correctly state the VAT treatment, as this is an area HMRC scrutinises closely.