Posted: October 17, 2014
Small businesses supplying digital services are being urged to sign up for a new online VAT service to cut down on red tape.
From October 20, businesses supplying digital services across the European Union will be able to register for the new service which means they do not have to register VAT separately in each country where they do business.
It’s estimated that between 27,000 and 42,000 UK businesses will register for VAT MOSS (VAT Mini One Stop Shop) in the UK, to avoid additional administrative burdens and costs if a business is required to register for VAT in every Member State where it has consumers.
This is because from 1 January 2015 the place of supply, and therefore taxation, of EU business-to-consumer supplies of digital services is changing. Currently the place of taxation is where the supplier is established, but from January it will be where the consumer lives.
The digital services affected include most types of broadcasting, telecommunications and e-service supplies. Examples range from telephone services, supplies of music, films and games to downloads of apps, images, text or other information.
Sally Beggs, Deputy Director, Indirect Tax, HMRC, said: “The VAT MOSS will save digital services suppliers from having to register for VAT in every Member State where they do business, removing a significant administrative burden. Businesses with their main operation or headquarters in the UK will register with HMRC to use the service.”
While businesses will be able to register from 20 October 2014, the service will not start operating until 1 January 2015.
**** UPDATE, 14 JANUARY 2015 ****
HMRC has allowed a significant concession for any small businesses that were going to be caught up in the Mini One Stop Shop (MOSS) system for accounting for digital sales from 1 January 2015.
Under the previous rules those businesses operating below the existing UK VAT threshold (currently £81,000 per annum)would be forced to register for VAT and for the MOSS, and therefore fall into the UK VAT ‘club’ inadvertently, and have to account for VAT on their UK activities as well.
The concession that has been introduced applies to those ‘micro’ businesses that are able to differentiate between UK and non-UK sales, in that they will register and account for their MOSS activities only, i.e. the sales to non-business customers elsewhere in the EU.
Despite the publicity, guidance and ‘simplification’ measures introduced by HMRC, it is estimated that over 200 small businesses have had to shut down since the scheme came into being due to the complexity of registering and accounting for the VAT on sales.
If you think that you are going to fall into the MOSS ‘trap’ (which has been increasingly referred to by commentators as the VAT ‘MESS’) then please get in touch with your usual Burgess Hodgson contact.
The HMRC guidance can be found here.