Do I Charge VAT on Digital Products and Downloads

This guide explains when you must charge VAT on digital products and downloads including UK rules, EU OSS requirements, automated deliveries, and platform responsibilities.

This is one of the most important VAT questions for modern businesses, and one that I see misunderstood again and again. It comes up for online creators, software developers, course sellers, app builders, designers, consultants, and anyone selling something that is delivered digitally rather than physically.

The confusion usually starts because digital products do not feel like traditional goods or services. There is no box, no delivery van, and often no human involvement once the system is set up. Many people assume that VAT does not apply, or that the rules are lighter, or that overseas sales somehow fall outside the system.

In reality, VAT absolutely can apply to digital products and downloads, and in some cases the rules are stricter rather than simpler.

In this article, I am going to explain clearly and practically whether you need to charge VAT on digital products and downloads, how the rules differ depending on who you sell to and where they are based, and what this means for UK businesses in the real world. I will also cover common mistakes, HMRC expectations, and how I advise clients to stay compliant without overcomplicating things.

By the end, you should have a clear and confident understanding of when VAT applies to digital products, and when it does not.

What HMRC means by digital products and downloads

Before we can answer whether VAT applies, we need to be clear on what counts as a digital product or download.

For VAT purposes, digital products usually fall under the category of electronically supplied services.

These are services that are:

  • Delivered over the internet or an electronic network

  • Supplied with minimal or no human intervention

  • Impossible to supply without technology

Common examples include:

  • Downloadable software

  • Mobile apps

  • Digital courses and training

  • E books and PDFs

  • Music and video downloads

  • Membership content accessed online

  • Stock photos or digital design assets

This classification matters because electronically supplied services have their own VAT rules.

The starting point, VAT depends on registration

The first thing I always clarify with clients is this.

You only charge VAT if you are VAT registered.

If you are not VAT registered:

  • You do not charge VAT on digital products

  • You do not submit VAT returns

  • You cannot reclaim VAT on costs

If you are VAT registered, or required to be registered, then VAT rules apply to your digital sales in full.

Everything that follows assumes you are VAT registered, or deciding whether you should be.

Are digital products subject to VAT in the UK?

Yes, digital products and downloads are generally subject to VAT.

From HMRC’s perspective, selling a digital product is still making a taxable supply. The fact that nothing physical changes hands does not remove the VAT obligation.

In most cases:

  • Digital products sold by a UK VAT registered business are standard rated

  • VAT is charged at 20 percent

There are exceptions, but this is the default position.

Selling digital products to UK customers

Let us start with the simplest scenario.

If you are a UK VAT registered business selling digital products to UK customers, the position is usually straightforward.

In most cases:

  • You charge VAT at 20 percent

  • You include the VAT in your price or add it on top

  • You account for the VAT on your VAT return

For example, if you sell a digital course for £100:

  • Net price is £83.33

  • VAT at 20 percent is £16.67

  • Gross price is £100

Many online businesses price digitally inclusive of VAT, even if VAT is not shown separately to consumers.

Business customers versus consumers

VAT treatment depends heavily on who you are selling to.

HMRC distinguishes between:

  • Business to consumer sales, often called B2C

  • Business to business sales, often called B2B

This distinction is critical for digital products.

Selling digital products to UK businesses

If you sell a digital product to another UK business that is VAT registered:

  • You normally charge VAT at 20 percent

  • The customer can usually reclaim the VAT

This applies to things like software licences, online tools, and digital subscriptions.

From a VAT perspective, these are treated in much the same way as traditional services.

Selling digital products to UK consumers

If you sell to UK consumers, meaning individuals who are not VAT registered:

  • You still charge VAT at 20 percent

  • The VAT becomes a real cost to the customer

  • Pricing strategy becomes important

This is where digital businesses often feel the impact of VAT most strongly, particularly in competitive consumer markets.

Selling digital products to customers outside the UK

This is where things become more complex, and where many businesses get it wrong.

VAT on digital products depends on where the customer is based, not where you are based.

This is a crucial point.

Digital products sold to EU consumers

If you sell digital products to EU consumers, VAT rules are strict.

In most cases:

  • VAT is charged based on the customer’s country

  • You must apply the local VAT rate

  • You must report and pay that VAT

This applies even if:

  • You are based in the UK

  • You have no physical presence in the EU

  • The sale is fully automated

To manage this, businesses often use special reporting systems, such as the One Stop Shop.

This area causes more VAT problems than almost any other in the digital world.

Digital products sold to EU businesses

If you sell digital products to EU VAT registered businesses:

  • VAT is usually not charged

  • The reverse charge applies

  • The customer accounts for the VAT

However, this only applies if:

  • The customer provides a valid EU VAT number

  • You correctly verify and record it

If you do not have a valid VAT number, HMRC will usually treat the sale as B2C instead.

Selling digital products to customers outside the UK and EU

If you sell digital products to customers outside the UK and EU, such as the US or Australia:

  • VAT is often not charged

  • The supply may be outside the scope of UK VAT

However, you must still keep evidence of where the customer is located.

Different countries may also have their own sales tax or digital tax rules, which sit outside UK VAT.

Zero rated digital products, are there any?

Some people assume that digital products might be zero rated, especially where physical equivalents are zero rated.

This is a common misunderstanding.

For example:

  • Physical books are zero rated

  • Printed manuals are zero rated

But:

  • E books and digital publications are not always zero rated

  • Many digital equivalents are standard rated

VAT treatment depends on specific legislation, and digital does not automatically follow physical.

This catches out many content creators.

Subscriptions and memberships

Digital subscriptions are very common, and VAT still applies.

For example:

  • Monthly access to online content

  • Software as a service

  • Paid communities or platforms

These are usually treated as electronically supplied services and are standard rated, unless a specific exemption applies.

VAT is charged on each subscription payment.

Bundled products, digital plus physical

Some businesses sell bundles that include both digital and physical items.

For example:

  • A course plus printed materials

  • Software plus hardware

  • Digital access plus live sessions

In these cases, VAT treatment depends on:

  • What the main supply is

  • Whether items can be separated

  • How pricing is structured

This is an area where mistakes are common, and advice is often worthwhile.

What about free digital products?

If a digital product is genuinely free, with no payment or consideration, VAT usually does not apply.

However, be careful.

If the free product is linked to:

  • A paid subscription

  • A membership fee

  • Another taxable supply

VAT may still be due on the overall arrangement.

HMRC looks at substance over form.

VAT and platforms like Shopify or Gumroad

Many digital sellers use platforms to deliver products.

Using a platform does not remove your VAT obligations.

You need to understand:

  • Whether the platform is acting as agent or principal

  • Who is responsible for charging VAT

  • Who reports the VAT to tax authorities

In some cases, platforms collect and remit VAT on your behalf. In others, they do not.

Assuming the platform handles VAT without checking is a very common mistake.

Evidence of customer location

For digital products, HMRC requires evidence of where your customer is located.

This might include:

  • Billing address

  • IP address

  • Bank or card country

You usually need at least two pieces of non conflicting evidence.

This is particularly important for overseas sales.

Common VAT mistakes with digital products

Over the years, I have seen the same errors repeatedly.

These include:

  • Assuming digital products are VAT free

  • Charging UK VAT on overseas consumer sales incorrectly

  • Failing to distinguish B2B and B2C sales

  • Not collecting evidence of customer location

  • Relying on platforms without understanding responsibility

These mistakes often only come to light during HMRC reviews.

How digital VAT affects VAT registration thresholds

Digital sales count towards the VAT registration threshold.

This includes:

  • UK digital sales

  • Some overseas digital sales

Fast growing online businesses often cross the threshold quicker than expected.

This is another area where digital sellers are caught out.

How I advise clients selling digital products

In practice, I advise clients to focus on clarity rather than complexity.

This usually means:

  • Understanding who your customers are

  • Knowing where they are based

  • Setting up systems to apply VAT correctly

  • Reviewing platform responsibilities carefully

  • Getting advice before scaling internationally

VAT on digital products is manageable, but only if addressed early.

Why getting this wrong can be costly

VAT errors in digital businesses can lead to:

  • Undercharged VAT

  • Unexpected VAT bills

  • Penalties and interest

  • Problems expanding internationally

Because digital products scale easily, small errors can become very expensive very quickly.

Final thoughts

Yes, in many cases you do need to charge VAT on digital products and downloads. If you are VAT registered and selling digital products to UK customers, VAT is usually charged at 20 percent. When selling overseas, especially to EU consumers, the rules become more complex, and VAT may still be due even though the customer is outside the UK.

The biggest mistake I see is assuming that digital means simple. From a VAT perspective, it often means the opposite.

In my experience, digital businesses that take time to understand VAT early rarely have problems later. Those that ignore it, or assume platforms or geography make it irrelevant, often face painful corrections down the line.

If you sell digital products and are unsure whether you should be charging VAT, or where, getting clarity now is far easier than fixing it later.