The Council of the EU agrees on VAT in the digital age package
This week, the Council of the EU agreed on new measures to modernise the EU’s value added tax (VAT) system. This legislative package, which includes rules for electronic invoicing, real-time data reporting, and digital platform transactions, aims to combat tax fraud, support businesses, and encourage digitalisation.
This provides useful context for the UK. A reminder that the UK Government currently has Making Tax Digital, a key part of the Government's Tax Administration Strategy aimed at reducing the tax gap by requiring businesses and individuals to keep digital records and use software that works. Along with submitting updates every quarter with the aim of bringing the tax system closer to real time.
In our Small Enterprises, Big Impact report and Growth Plan, techUK has long called for the Government to commit to timelines for Making Tax Digital for Income Self Assessment, rolling this out in 2026.
In the Chancellor's Autumn Budget this week, the UK Government also started the ball rolling on es-invoicing. The Government will publish a consultation in early 2025. This will aim to establish standards and increase the adoption of electronic invoicing. This had already been unveiled on 23 September as part of a package of reforms to improve the UK’s tax system to help fix the foundations of the UK economy.
On this, in our Small Enterprises, Big Impact report and Growth Plan, techUK called for a phased introduction of MTD E-invoicing for B2B transactions to support small business productivity and tackle late payments.
The Council of the EU's agreement includes a directive, a regulation, and an implementing regulation, which together update three aspects of the VAT system: digtial VAT reporting, VAT for the platform economy and a one-stop shop for VAT registration. You can find more information on this below.
Digital VAT Reporting
By 2030, VAT reporting for cross-border transactions will be fully digital. Businesses will use e-invoices for cross-border transactions, reporting data in real-time to tax authorities, which will share it through a new IT system to detect fraud.
Currently, businesses must periodically submit ‘recapitulative statements’ to their national tax authorities, detailing goods and services sold to businesses in other EU member states where those transactions are taxable.
This process creates opportunities for fraudsters, as authorities struggle to quickly detect suspicious or fraudulent transactions due to the incomplete and non-real-time nature of the data.
VAT for the platform economy
Online platforms will collect and remit VAT for short-term accommodation and passenger transport services when individual providers do not charge VAT. This aims to close VAT gaps and ensure fair competition.
At present, many providers of online accommodation rentals and passenger transport services do not pay VAT. This is often because they are individual providers (like drivers or people renting out their apartments) or small businesses that are not required to register for VAT or are unaware of their tax obligations in other member states.
As a result, significant amounts of VAT go uncollected, leading to unfair competition between traditional services and those operating through digital platforms.
One-stop shop for VAT registration
The scope of the existing one-stop shops will expand to include business-to-consumer sales within a member state, reducing the need for multiple VAT registrations. The reverse charge mechanism will become mandatory for certain transactions.
Currently, a ‘one-stop shop’ system enables businesses to declare and remit VAT on sales of goods and services to consumers across EU countries through a single member state’s administration and in one language. However, companies that wish to sell goods to consumers within a different member state (e.g., from a warehouse or a local market) still need to register for VAT in both their home country and the other member state.
These measures aim to modernise VAT reporting, ensure fair competition, and simplify VAT compliance for businesses.
techUK look forward to continuing to work with the UK Government to ensure a more digitised tax system can reduce the tax gap, and drive efficiency and productivity for UK businesses, recognising the growth benefits that digitisation can bring.
Neil Ross
As Associate Director for Policy Neil leads on techUK's public policy work in the UK. In this role he regularly engages with UK and Devolved Government Ministers, senior civil servants and members of the UK’s Parliaments aiming to make the UK the best place to start, scale and develop a tech business.
Samiah Anderson
Samiah Anderson is the Head of Digital Economy at techUK, overseeing the Digital Economy programme, which promotes how the UK digital economy and innovation can drive sustained economic growth.
Mia Haffety
Mia joined techUK in September 2023.
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