Who it's for: finance teams in UK SaaS and digital businesses that sell subscriptions to customers outside the UK, especially anyone who prepares the VAT return or sets up tax in the billing system.
What you'll get: the UK place of supply rules, the EU non-Union One Stop Shop, a quick look at Norway, Switzerland and Australia (all as at October 2026), a monthly checklist, a worked example with journals, and AI prompts to try.
Reading time: about 12 minutes. Longer if you stop to check your billing system's tax settings, which is the point.
Why overseas VAT catches SaaS teams out
Selling software abroad is easy. Getting the VAT right is not. For digital services, the tax often follows the customer, not the seller, so a UK company with a few hundred consumer subscribers in Europe can owe VAT in a dozen countries without anyone noticing. Errors usually surface late, as back-dated tax, penalties and interest, or as a nasty question in due diligence.
Key terms
- Place of supply: the country where a service is treated as supplied for VAT. That decides whose VAT applies.
- B2B and B2C: sales to businesses and sales to consumers (people buying for private use).
- Electronically supplied services (ESS) or digital services: services delivered over the internet that are mainly automated with little human involvement, such as SaaS subscriptions, downloads, streaming and web hosting. Live webinars and tutor-led courses are generally not ESS.
- Reverse charge: the business customer accounts for the VAT in its own country instead of the supplier charging it.
- Outside the scope of UK VAT: a sale with its place of supply outside the UK. No UK VAT is charged, but it still goes in the UK VAT return (see below).
- OSS (One Stop Shop): an EU system that lets a business report and pay VAT on certain sales to EU consumers through one EU country, instead of registering in each.
- Non-Union scheme: the OSS route for businesses not established in the EU, which includes UK businesses without an EU establishment.
- Member State of identification (MSI): the EU country a business registers with for OSS.
The rules in one table (as at October 2026)
Based on HMRC guidance on gov.uk and the European Commission's OSS guidance as at October 2026. Rules and thresholds change, so check the current pages before relying on them. Northern Ireland has some different rules for goods; this guide covers digital services sold by a GB-based business.
| Customer | Where the supply is taxed | What the UK supplier typically does |
|---|---|---|
| UK business or consumer | UK | Charges UK VAT as normal |
| Overseas business (B2B) | Where the customer belongs (UK general rule) | No UK VAT. Customer usually accounts for local VAT under a reverse charge. Keep evidence it's a business, such as a valid VAT number |
| EU consumer (B2C), digital services | Where the consumer lives | Charges VAT at that country's rate and accounts for it, either through the non-Union OSS in one EU country or by registering in each country |
| Consumer elsewhere (B2C), digital services | Usually where the consumer lives, under that country's own rules | Check each country's rules and thresholds; many have their own registration systems for overseas digital sellers |
No EU threshold for UK sellers. The EU's €10,000 threshold, below which digital sales can be taxed in the seller's own country, applies only to suppliers established in a single EU country; EU tax authority guidance (for example Ireland's Revenue) says it doesn't apply to suppliers established outside the EU. So a GB business with no EU establishment generally accounts for EU VAT from the first B2C sale. Check this against the current EU guidance if your structure is unusual.
Proving where the customer is
For B2C digital sales, HMRC's guidance says to keep evidence of where the consumer is located. Accepted types include billing address, IP address, bank details and a mobile SIM country code. HMRC also describes a simpler two-piece approach for micro and small businesses using payment providers: record a billing country (or phone dialling code) at checkout, and the customer's country code from the payment provider. If they match, keep them. If not, resolve the difference with the customer.
For B2B, a valid VAT number is the best evidence the customer is a business. HMRC's guidance says that without one, the default is to treat the sale as B2C, though other commercial evidence can be accepted.
AI shortcut: give an approved AI tool the month's invoice export with billing country, IP country, card country and VAT number fields, and ask it to list every customer where the countries don't match, or where B2B was applied without a VAT number. A person checks each item and fixes the tax code before the return is filed.
The EU non-Union OSS in practice
- Registration: one EU country of your choice becomes the Member State of identification.
- Returns: quarterly, due by the end of the month after the quarter (30 April, 31 July, 31 October and 31 January). Weekends and holidays don't move the date. Returns can't be filed before the quarter ends.
- Nil returns: required for quarters with no sales.
- Payment: one payment to the MSI by the same deadline, quoting the return reference. The MSI passes the VAT on to each country.
- Currency: usually euro. Sales in sterling are converted at the European Central Bank rate published on the last day of the quarter.
- Corrections: made in a later return, within three years of the original due date.
- Records: the EU says records must be kept for 10 years from the end of the year in which the transaction was made.
Other countries at a glance (as at October 2026)
| Country | Rule for overseas digital sellers selling to consumers | Source to check |
|---|---|---|
| Norway | Register under the simplified VOEC scheme once sales to Norwegian consumers exceed NOK 50,000 in any 12-month period. B2B sales are outside VOEC; the business customer deals with the VAT | Skatteetaten |
| Switzerland | Foreign businesses generally become liable once worldwide turnover from taxable supplies reaches CHF 100,000 a year, and need a Swiss tax representative. Check the treatment of digital services to consumers with the Swiss tax authority | Swiss Federal Tax Administration (ESTV) |
| Australia | GST registration required once Australian-connected sales reach A$75,000 (current month plus previous or next 11 months). Simplified registration is available. Sales to GST-registered Australian businesses are left out of the threshold | Australian Taxation Office |
| Other countries | Many countries tax overseas digital sellers. Rules vary, and US sales tax works differently again | Each country's tax authority |
Month-end and quarter-end checklist
| Task | What "done" looks like | |
|---|---|---|
| ☐ | Run the sales report by customer country and B2B/B2C flag | Every invoice has a country and a customer type |
| ☐ | Check B2B customers have valid VAT numbers (or other evidence) | Numbers validated (for example on the EU's VIES checker); exceptions listed |
| ☐ | Check location evidence for B2C customers | Two non-contradictory pieces of evidence held, or a mismatch report cleared |
| ☐ | Reconcile VAT charged per country in the billing system to the ledger | OSS VAT control account agrees to the billing system report |
| ☐ | Track sales against non-EU thresholds (Norway, Australia and others) | Rolling 12-month totals updated; any country nearing a threshold flagged |
| ☐ | Prepare the OSS return (quarter-end) | Sales and VAT by country, converted at the ECB rate for the last day of the quarter |
| ☐ | File and pay OSS by the end of the following month | Submission and payment references saved |
| ☐ | Include overseas sales in the UK VAT return | Outside-scope sales in box 6 (see below); no UK VAT charged on them |
UK VAT return: HMRC's VAT Notice 700/12 says box 6 (total sales) includes supplies outside the scope of UK VAT under the place of supply rules. So overseas B2B sales and EU B2C sales go in box 6 net of VAT, but don't add to box 1. VAT Notice 700 also says input VAT on costs linked to outside-scope supplies can normally be recovered if those supplies would be taxable if made in the UK, which SaaS subscriptions typically would be.
Worked example: one quarter of EU sales
MonthEndClub Co Ltd, a fictional GB company, sells a SaaS subscription. It is registered for the non-Union OSS. To keep the example general, the country VAT rates below are illustrative only; real rates vary and change, so always use the current rate for each country.
| Customer | Type | Net sale (€) | Illustrative rate | VAT (€) |
|---|---|---|---|---|
| Consumers in Country A (EU) | B2C | 10,000 | 20% | 2,000 |
| Consumers in Country B (EU) | B2C | 5,000 | 25% | 1,250 |
| Business in Country A, valid VAT number | B2B | 20,000 | Reverse charge | 0 |
| Total | 35,000 | 3,250 |
For simplicity, assume a rate of €1 = £0.85 throughout. Net B2C sales are £12,750 (€15,000 × 0.85) and OSS VAT is £2,762.50 (€3,250 × 0.85). The B2B sale is £17,000 (€20,000 × 0.85).
Journal: B2C sales (summarised for the quarter)
| Account | Dr | Cr |
|---|---|---|
| Trade debtors / Stripe clearing | £15,512.50 | |
| Revenue (or deferred revenue) | £12,750.00 | |
| OSS VAT control account | £2,762.50 |
Journal: B2B sale (no VAT; invoice notes the customer accounts for VAT under the reverse charge)
| Account | Dr | Cr |
|---|---|---|
| Trade debtors | £17,000 | |
| Revenue (or deferred revenue) | £17,000 |
Quarter-end: the OSS return shows €3,250 of VAT, split €2,000 to Country A and €1,250 to Country B. The euro amount due is converted at the ECB rate for the last day of the quarter if invoiced in sterling, and the payment clears the control account. Any small difference from the rates used during the quarter goes to FX gains and losses. In the UK VAT return, box 6 includes £29,750 (£12,750 + £17,000); box 1 includes nothing for these sales.
A note on revenue: VAT doesn't change revenue recognition. Under IFRS 15 and FRS 102, VAT collected for a tax authority is excluded from revenue. If you report under US GAAP (ASC 606), there's a policy choice to present sales taxes net, which many SaaS companies take, giving the same answer.
Common mistakes and audit watch-outs
- Treating every overseas sale as zero VAT. B2C digital sales to the EU usually carry the customer country's VAT, from the first sale for a GB seller.
- B2B status without evidence. A blank VAT number field means B2C by default.
- Wrong country evidence. Using only a self-declared address, with no supporting data point, is weak evidence.
- Leaving outside-scope sales off the UK return. They belong in box 6.
- Missing nil OSS returns. A quiet quarter still needs a return.
- Not watching other countries' thresholds. Norway and Australia, among others, can catch a growing SaaS business.
- Treating billing system tax settings as "set and forget". Rate changes and new countries need updating; someone should own the tax table.
- Relying on AI for rates. AI tools can give out-of-date VAT rates. Rates come from official sources; AI only checks the data against them.
Tools that can help
Billing tools such as Stripe and Chargebee can calculate VAT by customer location and collect VAT numbers at checkout. Xero, QuickBooks, Sage and NetSuite handle tax codes and the UK return. The EU's VIES service validates EU VAT numbers. Excel or Google Sheets is fine for the threshold tracker. An approved AI assistant helps with mismatch reports and first drafts of reconciliations. None of these replace a person owning the tax settings and the return.
AI prompts to try
Use an approved AI tool only. Check every output against the source data before acting.
- Location check. Give it: the invoice export with billing, IP and card country. Ask: "List every invoice where these countries don't all match, grouped by customer." Check: a sample of matches too, not just the flagged ones.
- B2B evidence check. Give it: invoices marked reverse charge with their VAT number field. Ask: "List invoices treated as B2B with a missing or badly formatted VAT number." Check: validate the remaining numbers on VIES.
- OSS draft. Give it: B2C sales and VAT by country for the quarter, plus the ECB rate you looked up. Ask: "Build a table of net sales and VAT by country in euro, with totals." Check: totals agree to the ledger control account.
- Threshold tracker. Give it: 12 months of sales by country and customer type. Ask: "Show rolling 12-month B2C sales for Norway and Australia, and flag any month above 80% of the threshold I give you." Check: the thresholds against the official sites.
Rates, thresholds and rules in this guide
Figures were checked against the pages below in October 2026. They change regularly (often each April or at Budget time), and we can't guarantee they're still current or right for your situation. Always check the official page before relying on them.
- Work out your place of supply of services for VAT rules (GOV.UK): B2B services taxed where the customer belongs
- VAT rules for supplies of digital services to consumers (GOV.UK): EU B2C digital sales, customer location evidence, VAT numbers for B2B
- How to fill in and submit your VAT Return, VAT Notice 700/12 (GOV.UK): outside-scope supplies in box 6
- VAT guide, VAT Notice 700 (GOV.UK): input VAT on costs linked to outside-scope supplies
- Declare and pay in OSS (European Commission): OSS return and payment deadlines, nil returns, ECB rate, corrections
- Record keeping and audits in OSS (European Commission): 10-year record keeping
- Electronically supplied services (Revenue, Ireland): €10,000 threshold not applying to non-EU suppliers
- Guidelines for VAT on Electronic Commerce, VOEC (Norwegian Tax Administration): NOK 50,000 threshold and B2B sales
- VAT liability: foreign companies (Swiss Federal Tax Administration): CHF 100,000 worldwide turnover and tax representative
- How Australian GST works (Australian Taxation Office): A$75,000 threshold, simplified registration
Key takeaways
- As at October 2026, B2B digital sales abroad are usually outside the scope of UK VAT, with the customer reverse charging.
- B2C digital sales to EU consumers are taxed where the consumer lives; a GB seller typically uses the non-Union OSS, with no EU threshold.
- Evidence is everything: VAT numbers for B2B, two location data points for B2C.
- Outside-scope sales still go in box 6 of the UK VAT return.
- Track other countries' thresholds monthly, and let AI flag; people decide and file.
FAQs
Do we charge UK VAT to a US business customer?
Generally no. For B2B services the UK general rule taxes the supply where the customer belongs, so it's outside the scope of UK VAT. US sales tax is a separate question with its own state-by-state rules.
Is a SaaS product with live onboarding still a digital service?
The subscription usually is, as it's automated. Separately priced live training or consultancy may follow different rules. Contracts with both often need each element looked at separately.
Can AI tell us the right VAT rate for each country?
It can draft a list, but rates change and AI can be out of date. A common approach is to take rates from official sources, keep them in the billing system's tax table, and use AI only to check invoices against that table.
What if we've been getting this wrong?
Many businesses find historic errors when they first look. Correction routes differ by country and by the OSS rules, so teams typically work out the size of the issue first and then get specialist help on how to correct it.
Related guides
- Reconciling Your Billing System to the Ledger
- Stripe Payout Reconciliation: Fees, Refunds, Disputes and FX
- Month-End FX Revaluation, Step by Step
- SaaS Revenue Recognition in Plain English (IFRS 15 / ASC 606)
More in Busy Season guides.
From the Club
Place of supply: your desk. Place of consumption: also your desk. The Team Mug · The Dad Hat
Join the Club. New guides, early access and members-only batches. Join here.
This guide is general information about common practice. It isn't tailored to any business, and standards, tax rules and figures change. Check your own circumstances, the latest rules and, where needed, a qualified professional before acting.
Last reviewed: October 2026.