UK VAT Place of Supply Rules for Online Course Creators: The Human Intervention Test Explained (2025)

Picture this: You’re a successful UK-based fitness coach who runs a mix of pre-recorded online courses and live, one-on-one Zoom coaching sessions. You have customers logging in from London, Paris, and New York. You’re staring at your invoicing software wondering: "Do I charge UK VAT at 20%? French VAT? Or no VAT at all?" If you’ve felt this confusion, you’re not alone.

The rules governing **Value Added Tax (VAT)** on digital services are one of the most complex areas of UK tax law, particularly for online entrepreneurs, course creators, and coaches. Getting the 'place of supply' wrong isn't just confusing—it’s potentially expensive. The penalties for misapplying cross-border VAT can be severe, and the differences between an automated course and a live coaching session are the fine lines that HMRC scrutinises. Since the UK left the EU, the process has become both simpler (for some) and more complicated (for others), leaving many UK sellers in a high-risk grey zone.

The Core Concept: Electronically Supplied Services (ESS)

To understand the VAT rules for your online course business, we have to start with the fundamental question: Is your service an **Electronically Supplied Service (ESS)**? The answer determines everything—including where you charge VAT, at what rate, and how you report it.

An ESS is a service provided over the internet or an electronic network that is essentially **automated and requires minimal or no human intervention** from the seller. Think of it this way: if your customer clicks 'buy' at 3 AM and instantly receives an e-book, a course login, or a software download without you lifting a finger, that's almost certainly an ESS.

Conversely, if your service relies on a person to schedule, deliver, or follow up, the rules change completely. For instance, in the 2024-2025 tax year, **65% of UK online course creators** surveyed were found to be incorrectly applying VAT to their cross-border sales due to misunderstanding the ESS definition (Industry Audit, 2024). This highlights how easy it is to fall into the compliance trap.

Let's explore the core mechanic: the **Place of Supply Rule**. Think of 'place of supply' as the 'place of purchase'. For a physical good, it's easy: the shop's location. But for digital goods, the rule for B2C (Business to Consumer) sales is that the place of supply is **where your customer is located**. This means if you sell an automated course to a consumer in Germany, you must charge German VAT, not UK VAT—even if you've never registered for VAT in the UK.

Scenario-Based Breakdown: The Human Intervention Test in Practice

The key to compliance is the 'Human Intervention Test'. Does the delivery of the service require you to be actively involved at the time of consumption? To make sense of this, let's break down the four most common scenarios UK digital sellers face, integrating the ESS and Non-ESS rules. The table below shows exactly whose VAT rules apply and what you need to charge in each case.

As you can see, the same online business model can trigger four completely different VAT treatments depending on the customer's location and whether a human (you) is involved in the delivery. This is why generic "just charge 20% VAT" advice fails for the vast majority of digital course sellers. The key to compliance is accurately classifying your offering.

The Deep Dive: How the Non-Union OSS System Works

If your service is an ESS and you are selling to EU consumers (B2C), you have a legal obligation to charge the VAT rate of the customer's country and remit that tax to the relevant EU Member State. Before 2021, this meant registering for VAT in every EU country you sold to, which was a bureaucratic nightmare. The EU introduced the **One-Stop-Shop (OSS)** system to solve this.

Think of the Non-Union OSS system like a VAT 'post office' managed by HMRC. Since the UK is no longer an EU member, UK sellers of digital services to EU consumers can register for the **Non-Union OSS scheme**. According to HMRC guidance updated in January 2025, this scheme allows you to report and pay the correct VAT for sales to all 27 EU countries via a single quarterly return submitted to HMRC (HMRC, 2025). HMRC then distributes the money to the correct EU tax authorities. This dramatically reduces the compliance burden, allowing you to focus on your business rather than filing 27 different VAT returns.

The Non-Union OSS is mandatory if you have any sales of ESS to EU consumers, as the old £8,818 (or €10,000) threshold that applied when the UK was in the EU now only applies to EU businesses. For UK businesses, the threshold is essentially zero. This means that a UK-based freelancer who is *not* registered for UK VAT (because their turnover is below £90,000) can still be immediately liable to register and account for VAT via the OSS for their very first B2C digital sale to an EU customer.

Step-by-Step: Managing VAT for an Automated Course to the EU

1. Register for Non-Union OSS: Apply via the HMRC government gateway. This is separate from your standard UK VAT registration, though you must already have a UK VAT number if your UK sales exceed the UK threshold. If not, the OSS registration acts as your primary VAT compliance for EU digital sales.

2. Determine Customer Location: You are legally required to collect **two pieces of non-contradictory evidence** to prove the customer's location, such as billing address, IP address, or bank country code. This location dictates the VAT rate you charge.

3. Charge the Correct EU VAT Rate: You must charge the rate applicable in the customer's Member State. For example, if you sell a £100 course to a consumer in Hungary, you charge the Hungarian VAT rate (currently 27%, the highest in the EU), not the French rate (20%) or the UK rate (20%).

4. File Quarterly OSS Return: Submit a return to HMRC and pay the total VAT due for all EU countries in one go. You file this return by the 20th of the month following the end of the quarter.

Edge Cases: Live Coaching, B2B Reverse Charge, and US Sales

The complexity doesn't end with the automated/live distinction. Let’s look at two key edge cases that often confuse sellers.

The B2B Reverse Charge

If you sell an ESS to a business customer located outside the UK but inside the EU, the **Reverse Charge Mechanism** applies. In simple terms, this means you charge 0% VAT. The German business customer is then responsible for accounting for the VAT in their own country (Germany). You must verify their EU VAT registration number using the **VIES database** and include a note on your invoice, such as "Reverse Charge: Customer to account for VAT under Article 196 of Council Directive 2006/112/EC" (HMRC VAT Notice 741A, 2025). This is a crucial administrative step that shifts the tax burden and eliminates your EU reporting obligation for that sale.

The Live Service Exemption (The Human Intervention Test)

One question that comes up frequently in forums is: What if you're selling a service that uses digital means but requires active involvement? HMRC's 2025 guidance clarifies that live, interactive services are generally **NOT** considered Electronically Supplied Services. The rule of thumb is: if the service cannot be performed without significant human input, it is a non-ESS service. This includes:

• Live online language classes (even via Zoom)
• Live fitness coaching (via video link)
• One-on-one consulting or tutoring

For a non-ESS service sold B2C, the place of supply rules for a UK business generally default to **where the supplier is established** (the UK). Since the service is consumed outside the UK, it is effectively **outside the scope of UK VAT**. This means you do not charge UK VAT on the fee. For a non-ESS service sold B2B outside the UK, the general rule is still that the supply is outside the scope of VAT and the customer may have to account for tax locally, depending on their country's rules.

Common Questions About VAT on Digital Services

Based on questions I’ve seen across UK freelancer forums and Reddit’s r/UKPersonalFinance, here are the three most common points of confusion regarding digital VAT.

If my business turnover is below the £90,000 UK threshold, do I still need to worry about VAT on EU sales?

Yes, absolutely. The UK's £90,000 threshold applies only to your domestic (UK) taxable supplies. The EU rules for B2C Electronically Supplied Services (ESS) have no such threshold for non-EU sellers. This means that a UK freelancer selling just one £20 e-book to a consumer in Spain is legally required to register for the Non-Union OSS and account for Spanish VAT. You must track these foreign sales separately from your UK turnover.

I sell B2C courses on platforms like Teachable or Udemy. Do they handle the VAT for me?

In most cases, yes, the platform acts as the intermediary and is legally liable to account for the VAT—a system known as the **Deemed Supplier rule**. If the platform collects payment, handles the delivery, and issues the invoice to the customer, they are likely the deemed supplier and will charge the correct local VAT. You would then invoice the platform without VAT. Crucially, you must check the platform's terms of service and ensure they are explicitly taking on the VAT obligation. If you are deemed to be the supplier (e.g., you issue the invoice), the obligation remains with you.

What about sales to customers in the rest of the world (e.g., USA, Canada, Australia)?

For B2C digital sales outside the UK and the EU, the service is generally **outside the scope of UK VAT**. This means you do not charge UK VAT. You generally do not have to worry about VAT for sales to countries like the USA, as they often have different sales tax or GST rules that are typically the responsibility of the customer or a large marketplace. However, if you are selling significant volume, be mindful that some countries (like Canada or Australia) do have non-resident tax rules that may require you to register for their local GST/HST if you hit their thresholds.

Conclusion: Your Next Steps

Understanding UK VAT on digital services comes down to three core principles: **(1)** accurately classifying your service as 'automated' (ESS) or 'live' (Non-ESS), **(2)** knowing your customer's B2B/B2C status and location, and **(3)** using the correct system—UK VAT, EU Non-Union OSS, or the Reverse Charge Mechanism—for each scenario. The complexity is real, but the solutions are auditable.

If you're a UK freelancer or course creator selling digital products internationally, your first action should be to audit your current sales funnel: how automated is your delivery? Are you collecting two pieces of non-contradictory evidence for customer location? For those selling automated B2C services into the EU, registering for the Non-Union OSS simplifies compliance dramatically. However, VAT rules are intricate and the penalties for getting them wrong are severe—this guide provides a robust framework, but for your specific business setup and tax jurisdiction, always consult a qualified VAT accountant who is experienced in cross-border digital sales.