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.

Digital products are now one of the fastest growing business models in the UK. E-books, online courses, downloadable templates, stock photos, fitness plans, software subscriptions, printables, audio files, membership sites, and teaching resources are sold every day by creators, influencers, online entrepreneurs, and established companies. Because these products involve no physical goods many businesses assume VAT is simpler. In reality VAT on digital products is one of the strictest and most complex areas in the tax system.

The key question is simple. Do you need to charge VAT on digital products and downloads

The answer depends on where your customers are located, whether you are VAT registered, whether your product counts as a digital service, whether it involves personal involvement or automated delivery, and whether you sell B2C or B2B. In my opinion understanding these rules early is essential because VAT mistakes in digital businesses usually surface later when turnover is high and corrections become expensive.

This guide explains exactly when you must charge VAT on digital products and downloads, how UK VAT works post-Brexit, what rules apply to EU customers, how the new One Stop Shop system interacts with UK VAT, how to sell to businesses, how to treat marketplaces like Etsy or Amazon, and what record keeping HMRC expects.

The First Question: Are You VAT Registered in the UK

You only charge VAT on your digital products if you are VAT registered.

You must register if:

  • Your UK taxable turnover exceeds £90,000 in a rolling 12 month period
    or

  • You voluntarily register

If you are not VAT registered you do not charge VAT to UK customers.

However digital products sold to customers outside the UK can trigger VAT obligations even if you are not UK VAT registered. This is what confuses many sellers.

What Counts as a Digital Product for VAT

HMRC classifies digital products as electronically supplied services.

These include:

  • E books

  • PDFs and digital reports

  • Downloadable templates

  • Stock photos

  • Stock videos

  • Digital art

  • Music downloads

  • Audio guides

  • Software

  • Mobile apps

  • Online subscriptions

  • Access to automated training content

  • Membership platforms with automated delivery

  • Cloud storage

  • Automated digital tools

  • Web hosting

  • SaaS products

A product is considered digital if:

  • There is no physical component

  • The product is delivered automatically

  • The buyer can access it without human involvement

This distinction matters because it determines which VAT rules apply.

When You Do Charge VAT on Digital Products (UK Customers)

If you are UK VAT registered you must charge 20 percent VAT on digital products sold to UK consumers.

This includes:

  • Individuals

  • Non VAT registered businesses

  • Most online buyers

If your buyer is in the UK and is not VAT registered the default position is simple. You charge VAT.

VAT on Digital Products Sold to UK Businesses (B2B)

If your buyer is a VAT registered UK business you still charge VAT, but they can reclaim it on their VAT return.

The invoice must show:

  • Your VAT number

  • VAT charged

  • The rate applied

  • Breakdown of net and VAT amounts

Digital Products Sold to EU Customers: The Post-Brexit Rules

This is where things get complex.

Before Brexit the UK used the EU VAT MOSS scheme. Now the rules have changed.

If you sell digital products to EU consumers:

You must charge VAT based on the customer’s country, not the UK.

For example:

  • A customer in France buys your e book. You must charge French VAT.

  • A customer in Germany buys your online course. You must charge German VAT.

There is no threshold for this. The rules apply from the first sale.

To comply you have two options:

Option 1: Register for non-Union One Stop Shop (OSS) in an EU country

This allows you to:

  • Charge the correct EU VAT rates

  • File one quarterly return

  • Avoid registering in each EU country

Option 2: Register for VAT in every EU country where you make sales

This is rarely practical.

Important

Even if you are not VAT registered in the UK, you may still need OSS registration for EU customers if you sell digital products directly.

This is because EU VAT rules apply based on customer location, not your turnover.

In my opinion this is the biggest VAT trap for small digital businesses.

VAT on Digital Products Sold Internationally (Outside UK and EU)

For customers in countries outside the UK and the EU:

  • The supply is outside the scope of UK VAT

  • You do not charge VAT

  • You must still keep evidence of customer location

However local tax laws may impose obligations. For example:

  • Australia

  • New Zealand

  • Canada

  • Norway

  • Japan

These countries have GST-style digital service taxes.

Whether you need to register depends on your sales volume and local rules.

How to Work Out Where Your Customer Is Located

HMRC and EU VAT rules require two pieces of non-contradictory evidence of customer location.

Acceptable evidence includes:

  • Billing address

  • IP address

  • Bank location

  • Mobile phone country code

  • Delivery email domain

  • Payment provider location

Most digital platforms and payment processors provide this automatically.

The Difference Between Automated Digital Products and Personal Services

Not all online content counts as a digital product.

You must charge digital VAT rules if:

  • Content is automatically delivered

  • Access is immediate

  • No live human involvement

  • No manual customisation

Your product is not a digital product if:

  • You deliver content manually

  • You provide personalised support

  • You run live webinars or live coaching

  • You tailor a digital file for a specific customer

  • You deliver training interactively

These are classed as normal services, not electronically supplied services.

This distinction affects whether EU VAT rules apply.

VAT on Online Courses

VAT on online courses is complicated because courses vary.

Automated pre recorded course

  • No human involvement

  • Instant access

  • VAT applies under digital rules

Course with live tutoring

  • Human involvement

  • Standard VAT rules apply

  • Treated as a general service

Course with a mix of live and pre recorded

  • HMRC looks at the main nature of the supply

  • Often treated as a general service not a digital one

In my opinion course creators must be particularly careful. The classification changes VAT liability dramatically.

VAT on Membership Sites

Membership platforms can be:

  • Digital products

  • Mixed supplies

  • General services

If all content is delivered automatically it is a digital product and EU VAT rules apply.

If the membership includes:

  • Live sessions

  • Weekly Q&A

  • Coaching

  • Community support

Then the supply may no longer count as digital.

Do Marketplaces Handle VAT for You

If you sell through a marketplace the VAT treatment depends on the platform.

Platforms that handle VAT for you

Some platforms collect and remit VAT automatically for digital sales.

These include:

  • Etsy (for some digital categories)

  • Apple App Store

  • Google Play

  • Amazon Kindle Direct Publishing

  • Udemy

  • Skillshare

  • Gumroad (if EU VAT remittance is enabled)

Platforms that do not handle VAT for you

  • Shopify

  • WooCommerce

  • Payhip

  • Teachable (only partially)

  • Thinkific

  • Kajabi

  • Podia

If the platform does not handle VAT, the responsibility falls on you.

What VAT Rate Applies to Digital Products in the UK

Digital products are standard rated at 20 percent.

There are no reduced rates for digital downloads such as:

  • Templates

  • PDFs

  • Stock photos

  • Software

  • Tools

  • Membership subscriptions

However printed books are zero rated. Digital books are standard rated.

What Happens If You Do Not Charge VAT When You Should

If HMRC audits you and finds uncharged VAT:

  • You must pay the VAT you should have charged

  • You cannot recover it from customers

  • You may face penalties and interest

  • You may need to register retrospectively

Undercharging VAT can destroy margins because you must pay VAT out of the gross amount already received.

In my opinion this is the biggest financial risk for digital businesses.

VAT Registration Strategy for Digital Product Sellers

When it makes sense to register voluntarily:

  • When you make EU digital sales

  • When your customers are mainly VAT registered businesses

  • When you want to reclaim VAT on software, ads, or platform fees

  • When your product pricing can absorb the VAT

  • When you plan to scale significantly

When to delay registration:

  • When your customers are mostly consumers

  • When your margins are tight

  • When you want to keep prices low

  • When most customers are outside the UK and EU

Every digital business has a different strategy.

Record Keeping Requirements

You must keep records for at least six years including:

  • Customer country evidence

  • VAT invoices or receipts

  • Sales records

  • Payment provider reports

  • OSS returns if applicable

  • Exchange rate calculations

  • Proof of automated delivery

HMRC may request these records during a review.

Real UK Examples

Example 1: Selling templates on Etsy

Etsy handles EU VAT.
Seller must charge UK VAT if VAT registered.
No VAT if below threshold and UK only.

Example 2: Selling PDFs through Shopify

Seller must handle all VAT manually.
EU sales require OSS.
UK sales require VAT if registered.

Example 3: Running a coaching programme

Live sessions mean this is a general service.
Not classed as a digital product.
UK VAT applies if registered but OSS not required.

Example 4: Selling mobile apps

Platforms like Apple and Google handle VAT.
Developer receives net sales after VAT.

Example 5: Downloading fitness plans

If automated this is a digital product.
OSS required for EU customers.
Standard rated for UK customers.

Final Thoughts

Digital products are fully VAT taxable in the UK once you register. The complexity comes from international sales, EU rules, automated delivery, and whether the product counts as a digital service or a general service. If you sell automated digital products to EU customers you must register for the non Union OSS scheme regardless of your UK VAT status. If you are selling to UK customers and are VAT registered you must charge 20 percent VAT.

In my opinion digital business owners should treat VAT planning as a core part of their financial strategy because the margins on digital products can be high but VAT obligations can wipe them out if misunderstood. Once you understand the rules you can charge VAT correctly, price your products confidently, and expand internationally without risk.