VAT Online: The Digital Future of VAT Reporting

With the rise of ecommerce, governments are realizing the need to digitalize their VAT compliance processes and now moving procedures related to VAT online. The EU has taken a major step in this direction with its VAT in the Digital Age (ViDA) proposals, which were published by the EU Commission in December 2022 and lay out how the current VAT system will be modernized in the coming years. By making VAT digital, the EU and other countries are finally bringing a long-outdated system into the 21st century.

Why go VAT digital?

The traditional VAT system is paper-based and manual, which makes it prone to errors and fraud. It’s also time-consuming and costly to administer. With ecommerce becoming an ever more popular option for consumers, it has become increasingly difficult for tax authorities to keep track of cross-border transactions. Digital VAT offers a solution to these challenges by automating VAT processes, reducing the risk of errors and VAT fraud, and making compliance easier for businesses.

Digital VAT systems can also help businesses save time and reduce administrative costs. Instead of spending hours on paperwork and calculations, businesses can automate VAT processes using VAT software, completing the entire process online, from e-invoicing to filing returns. This will free up time for business owners to focus on other important aspects of their business.

A further benefit of making VAT digital is improved compliance. By automating the VAT compliance process, businesses can ensure they’re complying with VAT regulations. This will help them avoid penalties and fines for non-compliance. Digital VAT in the now

As part of the VAT ecommerce package that came into force on July 1st, 2021, the One Stop Shop (OSS) was introduced. The OSS is a single online VAT portal through which businesses can register for VAT and report and pay VAT on cross-border sales of goods and services. This means that companies no longer need to register for VAT in each Member State where they have customers. Instead, they can do everything online via the OSS scheme, all in one EU country.

Also introduced at that time was the Import One Stop Shop (IOSS). Another digital VAT solution, IOSS facilitates and simplifies the declaration and payment of VAT for the importation of consumer goods with a value not exceeding €150. IOSS enables businesses to collect, declare and pay VAT directly to the relevant EU tax authorities via a tax return submitted through the electronic IOSS portal.

The UK government’s digital initiative is called Making Tax Digital (MTD) for VAT. Introduced in April 2019, it requires VAT-registered businesses with a taxable turnover above the UK VAT threshold (currently £85,000) to keep digital records and submit online VAT returns using compatible software. MTD for VAT is part of a wider government initiative to make tax administration more digital and reduce the burden of tax compliance for businesses.

Trends in digital VAT reporting have also seen the adoption of real-time reporting (RTR), which allows tax authorities to receive VAT information in near real-time. Countries such as Spain, Italy, and Hungary have already implemented RTR systems.

Digital VAT in the future

The EU's VAT in the Digital Age (ViDA) is taking a major step towards further digitalizing the VAT system. It aims to simplify VAT compliance for businesses engaged in cross-border ecommerce transactions.

ViDA will introduce a number of changes to the existing rules and processes for VAT online, including introducing standardized Digital Reporting Requirements (DRR) and mandatory e-invoicing on intra-community trade. As well as this, the existing IOSS and OSS schemes will be expanded.

The following B2C supplies of goods will now be covered under the Union OSS scheme:

• Supplies of goods with installation or assembly.
• Supply of goods on board ships, aircraft, or trains.
• Supply of gas, electricity, heating, and cooling.
• Domestic supplies of goods.

There will also be an expansion of the non-Union OSS scheme, which will cover the supply of services from non-EU companies to all non-taxable individuals.

These are just a few of the changes planned by ViDA. Over the next few years, companies can expect to be doing more of their business online, and digital VAT reporting will be part of that.

Take your VAT online

Businesses that embrace digital VAT processes early on will have a competitive advantage over those that are slow to adapt. They will be better positioned to meet the changing demands of customers, suppliers, and regulators, and will have greater flexibility to scale their operations across borders.

Using the latest VAT software and technology, Taxually can help companies automate and digitalize their VAT compliance procedures, saving them time and reducing errors in the process. With our proprietary software, you can manage your VAT online, including registrations, calculations, filings, and more, all from one convenient platform.

Do you need help with your VAT compliance? Book a free call with one of our VAT experts to find bespoke solutions for your business, optimize your VAT costs, and reach millions of new potential customers.