From 1st January 2015 digital services provided to consumers within the European Union will become taxable in the member state in which the consumer resides.
The effect of this change is that anyone who provides digital services will potentially be liable to register for VAT in each and every member state in which he or she has customers.
This only applies to what is termed B 2 C sales, i.e. a business sells to the consumer. If you are selling B 2 B services, business to business, and your customer is VAT registered this does not apply.
There is a misconception that a business can take advantage of exemption from these new rules because it's turnover does not exceed the threshold. This is not correct.
Just because you are not UK VAT registered does not mean you escape this.
There is an escape clause to save the small business having to register in each of the EC countries in which it does business, called the Moss registration.
The Moss registration allows them to register for VAT in the country where they are established and an account for VAT at the rates applicable in each member state using an electronic portal. It is in fact a simpler portal to that which allows a business ro recover VAT incurred in other member states.
There is a potential issue which could arise.
The Moss does create a significant financial trap for small businesses because in order to use the scheme they have to register for VAT in the UK. If they do so, the UK definition of tax for taxable supply then makes the whole of their turnover in the UK subject to VAT. We await HM Revenue & Customs comments on this!