Back in January 2015, changes were made on the VAT rules for merchants to customer supplies relating to digital services in the European Union. Let’s find out more about VAT MOSS and the effect of it.
- What Changed?
- What is VAT MOSS?
- Who Does VAT MOSS Concern?
- What about Those with Online Shops
- Can VAT be Reclaimed?
- How will Brexit affect VAT MOSS?
Some digital services are now being taxed in the country the consumer is located;
- Broadcasting co-operations are now taxed.
- Electronic services; gaming, downloads both music and video, eBooks, etc.
- Telecom services; fax, internet, and phone networks.
Previously, these services were being taxed from the supplier’s country. What this means is that a UK based business supplying digital products to non-business clients in other European Union countries have to charge and account for VAT as per the local VAT rules available. To ensure accountability, all the affected businesses need to register for VAT in all the member countries in which they do transactions with. Another option is to register for the MOSS system which will facilitate the concerned businesses to quarterly submit bills to the HMRC to account for the charges to its cross-border clients.
What is VAT MOSS?
This is a facilitated way of paying VAT if it falls under the category of those supplying digital services to other European Union countries. This came into effect on 1st January 2015, and it means tax is now done in the consumer’s state. The abbreviation stand for Value Added Tax: Mini One Stop Shop. Sellers in the UK can now pay VAT to HMRC, instead of going to the process of registering VAT in each state.
Digital business services to countries based abroad are immune to the VAT MOSS. To save from the whole process of having to register the European Union VAT in each member state, opt for this online service by HMRC – VAT MOSS. However, you must be a registered UK VAT member to be able to use this. If, for some reason, you find your turnovers low from EU sales, it’s about time you sit and think through whether you still want to pursue the UK based business dream, or might prosper in a different legal structure. In as much as the VAT scheme is voluntary, rules are governing its use. It is therefore crucial that you seek professional advice before going ahead with it.
Who Does VAT MOSS Concern?
The VAT rules are only applicable to businesses dealing in digital services. This can be broadcasting, telecommunication and electronic services. You also have to be self-employed and therefore not fixed to specific companies. Digital services that are supplied other business are not considered to be affected by the VAT MOSS.
Two Types Under the VAT MOSS scheme
- Non-Union VAT MOSS
To qualify to use the Non-Union VAT MOSS scheme, your business ought to meet the following criteria:
- Located outside the European Union
- Supplying digital services to clients in the European Union
- No permanent business establishments in the EU
- Union VAT MOSS
To qualify for this, your business must:
- Be UK based or be a business with permanent establishments in the UK
- Should be UK VAT registered member
- Supplying digital services to clients in the EU
For businesses whose turnover is below the UK VAT threshold, they’re still required to register for UK VAT to use the Union VAT MOSS.
For Those with Online Shops
For this, the circumstances are a bit more complicated. This will mean that you, as a supplier, will be liable for ensuring the VAT prevailing rate is paid in the European Union state you’re intending to supply to because the online shop is taken to be acting as an agent. This means that the affected are those selling directly to the consumer.
To some more significant extent, this is likely to be valid if the one if the supplier is the one processing card payments for his sales. All these services and procedures will be recorded using the VAT MOSS. On the other hand, if the online shop appears to be acting in their capacity and representation, meaning they’re supplying their services to the shop, after which they then sell to the consumer; this will be in effect if they manage the whole sales process. What this means is that the rules will be not be affecting the supplier for the sales would be classified as being outside the VAT scope.
Can VAT be Reclaimed?
This is conditional and depends on some factors. Remember, your UK sales won’t be charged for VAT, therefore, any VAT reclaimed on your business purchases and expenses should either be split in accordance with the EU dependent sales or entirely attributable to the cross-border transactions you took part in.
For instance, you buy a telecommunication gadget and use it to generate funds, of which 70% are UK based, and 30% is across the border, the recoverable amount will be 30% of the charged VAT on the purchase of the telecommunication gadget with the help of the VAT MOSS scheme. 70% of the sales can only be included if you’re on standard scheme VAT. Lest we forget, the HMRC rules are complicated and being on a Flat Rate Scheme makes the situation more complicated. It is therefore recommended that you seek professional advice beforehand.
Quarterly UK VAT returns need to be completed even if it means you won’t be charging value added tax on UK sales. Sales invoice are therefore not valid in this case. Unless you seek to reclaim any expenses, you’ll be required to key in the zero expenses.
How will Brexit affect VAT MOSS?
Once article 50 is in effect, the VAT MOSS could change. However, at the moment, it’s not yet clear the effect Brexit will have on VAT; not until the UK government announces to the public. In the meantime let’s wait and see. For you to be able to use the MOSS, you’ll be required to register with tax authorities in all EU member states. We’ve given you some guidance on what’s expected with important considerations you ought to be on the lookout for. Try VAT MOSS today and enjoy.
What effect did the VAT MOSS have on your business? Drop us a comment.