Do I need to charge VAT on digital services in the UK?

Do I need to charge VAT on digital services in the UK?

If you sell digital services, “VAT” can feel like a moving target. You might be a freelancer building websites, a SaaS founder charging monthly subscriptions, a creator selling downloadable templates, or an overseas business serving UK customers online. The big question is simple: do you need to charge VAT on your digital services in the UK?

The honest answer is: sometimes yes, sometimes no, and it depends on a handful of factors that HMRC treats as critical. The most important are who you are selling to (business or consumer), where your customer is “located” for VAT purposes, what exactly you’re selling (a digital service, an electronically supplied service, or something else), and whether you are VAT registered (or must register). This article breaks down the key rules in plain English, with practical examples and checklists you can apply to your own situation.

What counts as a “digital service” for UK VAT?

People use “digital services” broadly, but VAT law is more specific. In practice, many online offerings fall under “electronically supplied services” (often shortened to ESS). These are services delivered over the internet (or an electronic network), supplied with minimal human intervention, and not feasible without technology. Think of services that are automated or digital by their nature.

Common examples that often fall under electronically supplied services include:

• Streaming or downloadable music, videos, and games
• Software downloads and SaaS subscriptions
• Mobile apps, online tools, and cloud-based products
• Access to automated online platforms (for example, a self-serve design tool)
• Downloadable digital products such as templates, e-books, and digital files
• Paid access to members-only content delivered automatically online

But not everything “online” is an electronically supplied service. Services involving significant human input—like live tutoring over Zoom, bespoke consulting, custom design work, or personally delivered coaching—may be treated differently for VAT “place of supply” purposes. The delivery method can be digital, but if the service is mainly human-delivered, it may not be classed as electronically supplied in the same way.

So, before you decide whether to charge VAT, get clear on what you’re actually supplying. If it’s automated and delivered digitally, ESS rules often apply. If it’s primarily a professional service delivered remotely, you may be in the normal services rules instead.

The first checkpoint: are you VAT registered (or do you need to be)?

In the UK, charging VAT usually follows VAT registration. If you are not VAT registered, you normally don’t charge VAT to your customers (there are some niche exceptions, but for most small businesses, this is the rule). If you are VAT registered, you usually must charge VAT on taxable supplies unless they are zero-rated or exempt.

The key questions are:

• Are you already VAT registered?
• If not, are you required to register due to turnover rules?
• If not required, would it still be beneficial to register voluntarily?

UK VAT registration is typically triggered when your taxable turnover exceeds the registration threshold in a 12-month period, or you expect to exceed it in the next 30 days. “Taxable turnover” includes standard-rated and zero-rated sales, but not exempt supplies. Most digital services are standard-rated, so they generally count toward the threshold.

If you’re under the threshold, you usually don’t have to register, so you usually don’t have to charge VAT. But you may choose to register voluntarily—for example, if your customers are mostly VAT-registered businesses that can reclaim VAT, or if you have significant VAT on your costs you want to recover.

This is important: whether you need to charge VAT is often downstream of whether you need (or choose) to be VAT registered. But it isn’t the only factor, because “place of supply” rules can sometimes require VAT registration in a jurisdiction even if you are small—particularly for cross-border digital sales. In the UK context after Brexit, you still need to think carefully about where your customer is and what rules apply.

The second checkpoint: where is your customer located for VAT purposes?

VAT is a tax tied to place. For services, UK VAT rules ask where the supply is treated as made—commonly called the “place of supply.” That determines whether UK VAT applies. For many services, the place of supply differs depending on whether you’re selling business-to-business (B2B) or business-to-consumer (B2C).

In broad terms:

• B2B: the place of supply is often where the customer belongs (the customer’s country).
• B2C: the place of supply is often where the supplier belongs (your country), but electronically supplied services have special rules that can shift the place to where the consumer is.

This is why it matters so much whether your buyer is a business or a consumer and where they are based. You can’t answer “do I charge UK VAT?” without knowing that.

B2B sales of digital services: often outside the scope of UK VAT

If you are a UK business selling services to a business customer in another country, the place of supply is commonly the customer’s country. That often means the sale is outside the scope of UK VAT. Instead of charging UK VAT, the customer may account for VAT in their country under a “reverse charge” mechanism (where applicable).

Practical implications for UK sellers:

• You may not charge UK VAT to a non-UK business customer if the place of supply is outside the UK.
• You typically need evidence that the customer is a business and belongs outside the UK (for example, their VAT number and address).
• You may need to include specific wording on the invoice indicating reverse charge treatment, depending on the customer’s country rules and your invoicing standards.

However, do not assume that “business customer” automatically means “no VAT.” Some services have special place of supply rules (for example, services connected with land, admission to events, certain transport services). Many digital and online services fit the general rule, but you should still sanity-check whether your service has an exception.

For UK-to-UK B2B sales, if you are VAT registered and your service is standard-rated, you normally charge UK VAT at the standard rate.

B2C sales of digital services: where the tricky bits start

If you sell digital services to consumers (individuals who are not buying as a business), the rules can change—especially for electronically supplied services. The core concept is that VAT on certain digital services may be due in the consumer’s country, not the seller’s country. This is intended to stop businesses from locating in low-VAT jurisdictions while selling to consumers elsewhere.

So for UK VAT purposes, you typically consider:

• Is the consumer in the UK? If yes, UK VAT may apply if you are VAT registered.
• Is the consumer outside the UK? If yes, UK VAT may not apply—but other countries’ VAT rules might.
• Are you selling an electronically supplied service, or a service with significant human intervention?

For a UK business selling to UK consumers, the answer is often straightforward: if you are VAT registered, you charge UK VAT on standard-rated digital services.

For a UK business selling to consumers outside the UK, you might not charge UK VAT, but you may have an obligation to register and charge VAT (or equivalent sales tax) in the consumer’s country. The details depend on whether that country has a scheme for non-resident sellers of digital services, thresholds, and compliance requirements. This is a “UK VAT” article, but you can’t fully ignore overseas compliance if you sell globally.

UK consumers: when do you charge UK VAT?

If your customer is in the UK and you are VAT registered, you generally charge UK VAT on taxable digital services at the standard rate. Most digital services are standard-rated. This includes SaaS subscriptions, online software access, and many downloads.

If you are not VAT registered and you are not required to be, you generally do not charge VAT. But keep a close eye on your taxable turnover and consider the commercial impact. Some customers (especially businesses) might prefer to deal with VAT-registered suppliers. Consumers generally prefer lower gross prices. Your customer mix matters.

Also, be cautious about what you’re selling. Some digital content could be zero-rated or treated differently in specific circumstances, but you should not assume that because something is “educational” or “information-based” it is exempt. VAT categories are technical, and many online supplies are standard-rated.

Non-UK customers: when do you charge UK VAT?

If your customer belongs outside the UK, your supply may be outside the scope of UK VAT depending on the place of supply rules. In many cases:

• B2B to non-UK: outside the scope of UK VAT (customer accounts for VAT locally if applicable).
• B2C to non-UK: often outside UK VAT, but you may have to charge VAT (or similar) in the customer’s country for certain digital services.

Even when you don’t charge UK VAT, you still need good records showing where your customer belongs. That might include billing addresses, IP location checks, payment card country, and other evidence. For digital services to consumers, the expectation is often that you keep evidence of customer location.

How to decide whether a customer is B2B or B2C

Misclassifying customers is one of the fastest ways to end up charging the wrong VAT. In VAT terms, it’s not just about whether someone has “Ltd” in their name. You need a reasonable basis to treat the buyer as a business customer.

Common indicators a customer is a business:

• They provide a valid VAT number (especially relevant for many overseas jurisdictions)
• The billing details are for a business entity
• The nature of the purchase matches business use (for example, multiple user licenses, corporate email domain)
• They confirm they are buying for business purposes

If you sell through a platform or marketplace, the platform may determine customer status and handle VAT collection. But if you sell directly, you need a consistent process. Many sellers build this into checkout: “Are you buying as a business?” then request VAT number and company name, and validate the information where possible.

Online marketplaces and platforms: are you the seller or the platform?

If you sell digital services through an online marketplace, app store, or platform, VAT responsibilities can shift. Some platforms are treated as the supplier to the consumer for VAT purposes (often called “deemed supplier” rules). In those cases, the platform may collect and remit VAT, and you may be supplying your service to the platform rather than to the end customer.

This matters because it affects:

• Whether you need to charge VAT to the end customer
• Whether you need to register for VAT based on your direct supplies
• What evidence you need to keep about customer location
• How you record revenue and VAT on your accounts

Do not assume that because a platform “handles taxes” you have no VAT obligations. You still need to understand your own supply (to the platform) and whether it is taxable, where it is supplied, and how you should invoice it.

Charging VAT: what rate applies to digital services?

Most digital services supplied in the UK are standard-rated. That means if UK VAT applies, you charge VAT at the standard rate on top of your net price (unless your pricing is VAT-inclusive, in which case the VAT is included within the gross price).

Some supplies are zero-rated or exempt, but these categories are narrower than many people think. Exempt supplies (like certain financial or insurance services) usually don’t cover typical digital services. Zero-rated supplies can exist, but you must be confident your exact supply fits the rule. If you guess wrong, you can end up with underpaid VAT.

From a pricing perspective, you should decide early whether your advertised prices are VAT-inclusive or VAT-exclusive. For consumer-facing pricing in the UK, it is common to show VAT-inclusive prices. For B2B pricing, many businesses show VAT-exclusive prices. But it’s not mandatory to follow a single approach—just be consistent and clear.

Invoices and receipts: what you must show when you charge VAT

If you are VAT registered and making taxable supplies, you will usually need to issue VAT invoices to business customers and provide appropriate receipts/records to consumers. A proper VAT invoice includes key details such as your VAT number, invoice date, description of the supply, net amount, VAT rate, VAT amount, and gross amount.

If you are not VAT registered, you should not include VAT on your invoices, and you should not present yourself as VAT registered. Charging “VAT” without being registered can create serious problems.

If you sell internationally, your invoice wording and VAT treatment can differ depending on whether UK VAT applies and whether reverse charge treatment is relevant. Even if you don’t charge UK VAT, your customer may ask for documentation explaining why.

Worked examples: common digital service scenarios

Examples help, because the rules can be abstract. Here are practical scenarios that mirror how digital businesses actually sell.

Example 1: UK SaaS selling to UK consumers

You run a subscription-based online tool. Customers sign up on your website and pay monthly. Your customers are mostly UK individuals. If you are VAT registered, you normally charge UK VAT on the subscription. If you are not VAT registered and below the threshold, you generally do not charge VAT (but keep tracking turnover).

Example 2: UK SaaS selling to UK businesses

You sell the same subscription, but to VAT-registered UK companies. If you are VAT registered, you charge UK VAT. Those business customers can usually reclaim the VAT as input tax (subject to the normal rules), so VAT is often less of a commercial issue for B2B. If you are not VAT registered, you can’t charge VAT, but some B2B customers might not mind—others may prefer a VAT invoice for procurement reasons.

Example 3: UK freelancer delivering custom website design to a US company

You provide custom website design with lots of human input: discovery calls, bespoke design, revisions, and implementation. The customer is a US company. Under general B2B services rules, the place of supply is often where the customer belongs (outside the UK), so the supply may be outside the scope of UK VAT. You would typically not charge UK VAT, but you should keep evidence that the customer is a business based outside the UK.

Example 4: UK seller of downloadable templates to EU consumers

You sell downloadable templates (a classic electronically supplied service) to individuals in multiple EU countries. UK VAT may not apply to those non-UK consumer sales, but you may have EU VAT obligations depending on the rules in each country and any available schemes for non-EU sellers. From a UK VAT standpoint you might not charge UK VAT, but you still need to be careful about customer location evidence and any overseas VAT registration requirements.

Example 5: Overseas business selling apps to UK consumers via an app store

You are based outside the UK and sell an app to UK consumers through a major app store. Often, the app store is treated as the supplier to the consumer and handles VAT. Your supply is to the platform. The VAT treatment depends on platform arrangements and the place of supply for your B2B supply to the platform. You still need to understand your revenue reporting and invoicing obligations, but you may not be the one charging UK VAT to the consumer.

Evidence and record keeping: proving customer location

For digital services—especially electronically supplied services to consumers—record keeping is not optional. If you don’t have evidence of where your customer belongs, it becomes hard to justify your VAT treatment if questioned.

Good practice is to gather and retain multiple pieces of evidence, such as:

• Billing address country
• Bank or payment card country (where available)
• IP address location or device location data (handled carefully and lawfully)
• Country selected during checkout
• Business VAT number for B2B customers (and evidence of validation)

Also keep clean records of refunds, chargebacks, discounting, and bundles. VAT often follows the consideration paid, so promotions and partial refunds can affect your VAT calculations. Your payment processor data should reconcile with your accounting records and VAT returns.

Bundled products: digital services mixed with other supplies

Many businesses sell bundles: access to a digital platform plus live support calls, or downloadable resources plus community access plus one-to-one sessions. VAT treatment can depend on whether you are making a single supply with ancillary elements or multiple separate supplies. This is one of the most nuanced areas of VAT and it can materially change what VAT you charge and where.

For example:

• If the primary element is automated digital access and the human support is minor, it may be treated as an electronically supplied service.
• If the primary element is personal professional input and the digital platform is just a way to deliver it, it may be treated as a standard service.

The difference matters most for cross-border B2C sales, where electronically supplied services can be taxed based on consumer location. If your bundle is heavily human-led, the place of supply rules may differ. If you are scaling an online offer, it’s worth designing your product structure and invoicing in a way that aligns with the intended VAT treatment.

Free trials, freemium models, and “tips”

Digital businesses love free trials and freemium. VAT cares about whether there is consideration (payment) for a supply and whether anything is provided in return. A free trial that later converts into a paid subscription is usually straightforward: VAT applies to the paid subscription if it is within scope.

“Tips,” donations, and voluntary payments can be trickier. If a payment is genuinely voluntary and not linked to receiving something specific, it may be outside the scope of VAT. But if the “tip” is effectively a required payment to access content or features, it is likely consideration for a taxable supply. The labels you use are less important than the reality of what the customer gets.

What if you make sales to both UK and non-UK customers?

Many digital sellers have mixed customer bases. In practice, you may have:

• UK consumers (likely UK VAT if you’re registered)
• UK businesses (UK VAT if you’re registered)
• Non-UK businesses (often outside the scope of UK VAT, but keep evidence)
• Non-UK consumers (often outside UK VAT, but watch overseas obligations)

This mix affects your VAT registration decision, your pricing strategy, and your systems. If you’re VAT registered, you may need your checkout to apply VAT based on customer type and location, produce compliant invoices, store location evidence, and map transactions correctly into your accounting software.

It’s worth setting up your tax logic early, because retrofitting can be painful. Payment processors and SaaS billing tools often have built-in tax modules, but you still need to configure them correctly and understand what they do and do not cover.

Do you need to charge VAT if you’re a sole trader or freelancer?

Your legal structure (sole trader, partnership, limited company) doesn’t change whether VAT applies. VAT is about taxable supplies and registration status. A sole trader providing digital services can be VAT registered, and once registered, must charge VAT on taxable UK supplies just like a company.

Freelancers commonly provide digital-adjacent services: design, development, editing, marketing services, video production, and consulting. Many of these are not “electronically supplied” because they involve significant human intervention. But they are still services, and UK VAT rules will apply if you’re VAT registered and the place of supply is the UK.

If you’re under the registration threshold, you may not need to charge VAT. But if your clients are mostly VAT-registered businesses, voluntary registration can sometimes make you look more established and allow you to recover VAT on expenses. On the other hand, if you sell mainly to consumers, registering can make your prices less competitive unless you absorb the VAT.

How to tell if UK VAT applies to a specific transaction

Here is a practical step-by-step method you can use for each sale. It won’t replace professional advice for edge cases, but it will cover most real-world digital service transactions.

Step 1: Are you VAT registered?

If no, you usually don’t charge VAT. If yes, go to Step 2.

Step 2: What are you supplying?

Is it an electronically supplied service (automated digital delivery) or a human-led service delivered remotely? Either way can be taxable, but the place of supply may differ, especially for B2C.

Step 3: Is the customer a business or a consumer?

If business, collect business details and (where relevant) VAT number. If consumer, treat as B2C.

Step 4: Where does the customer belong?

For UK VAT, determine whether they belong in the UK or outside it using reliable evidence.

Step 5: Apply the place of supply rule

For many B2B services, place of supply is where the customer belongs. For many B2C services, place of supply is where the supplier belongs, but electronically supplied services can be taxed where the consumer is.

Step 6: Decide the VAT treatment and invoice accordingly

If the place of supply is the UK and your supply is taxable, charge UK VAT at the correct rate. If the place of supply is outside the UK, you may not charge UK VAT, but make sure your invoice and records support that treatment.

Mistakes to avoid when charging VAT on digital services

Here are the pitfalls that trip people up most often:

• Assuming “online” automatically means electronically supplied services. Many online services are human-led and follow the general rules.
• Charging VAT when you’re not registered. Don’t add “VAT” to invoices unless you are VAT registered.
• Failing to distinguish B2B vs B2C. A missing VAT number or weak evidence can flip your VAT treatment.
• Not keeping customer location evidence. If challenged, you need a defensible trail.
• Ignoring overseas VAT obligations for B2C digital sales. Even if UK VAT doesn’t apply, other countries may require their local VAT.
• Not configuring checkout and billing systems properly. Tax automation is only as good as the settings and data you feed it.
• Misunderstanding bundles. A “course” could be digital access, live training, or a mixed supply with different rules.

Practical checklist for UK digital service sellers

If you want something you can actually implement, use this checklist:

• Track your taxable turnover monthly to monitor VAT registration risk.
• Define each product: automated digital service vs human-led service.
• At checkout, collect customer country and customer type (business/consumer).
• For business customers, collect company name and VAT number where applicable.
• Store evidence of customer location (billing country, payment country, IP/location signals where appropriate).
• Configure VAT rules in your billing platform: UK VAT for UK customers when registered; correct handling for non-UK supplies.
• Ensure invoices/receipts show correct VAT amounts and your VAT number if registered.
• Reconcile payment processor reports to your VAT reporting categories.
• Review bundles and promotions for VAT implications.
• Periodically review non-UK sales for overseas VAT registration requirements.

So, do you need to charge VAT on digital services in the UK?

Most of the time, the decision comes down to two core points: whether you are VAT registered, and whether the place of supply is the UK. If you are VAT registered and you are selling taxable digital services to customers who belong in the UK, you generally need to charge UK VAT. If you are not VAT registered, you generally don’t charge VAT—unless you become required to register due to turnover or special circumstances.

Where it becomes complex is when you sell cross-border, especially to consumers, and when your “digital service” is actually a blended offering of automated access plus human support. In those cases, you may not charge UK VAT, but you might have VAT obligations elsewhere, and you must keep solid records supporting your VAT treatment.

If you take one thing away, make it this: build a repeatable VAT decision process into your sales flow. Collect the right customer data, classify the supply correctly, and let that drive whether you charge UK VAT. Getting it right from the beginning is far easier than fixing it after you’ve scaled.