This will mean that they do not have to register VAT separately in each country where they do business.
To help the estimated 34,000 or so small-to-medium-sized enterprises (SMEs) affected by the changes, HM Revenue and Customs (HMRC) has released a short YouTube video:
The digital services affected include most types of broadcasting, telecommunications and e-service supplies. Examples range from telephone services, supplies of music, films and games to downloads of apps, images, text or other information.
From 1 January 2015 the place of supply, and therefore taxation, of EU business-to-consumer supplies of digital services is changing. Currently the place of taxation is where the supplier is established, but from January it will be where the consumer lives.
On 1 January all EU Member States will also implement the VAT Mini One Stop Shop (VAT MOSS), to avoid additional administrative burdens and costs if a business is required to register for VAT in every Member State where it has consumers.
Sally Beggs, Deputy Director, Indirect Tax, HMRC, said:
The VAT MOSS will save digital services suppliers from having to register for VAT in every Member State where they do business, removing a significant administrative burden. Businesses with their main operation or headquarters in the UK will register with HMRC to use the service.
Between 27,000 and 42,000 UK businesses are expected to register for VAT MOSS in the UK.
While they will be able to register from 20 October 2014, the service will start operating from 1 January.