Following adverse publicity concerning certain multi-national companies supplying digital services channelled through low tax EU countries (where VAT can be as low as 3% on digital products) the EU has now acted to ensure that VAT is due at the rate applicable in the Member State where the customer is based.
As a result businesses which provide telecommunications, broadcasting and electronic services (TBES) to non-business customers within the European Union need to be aware of important and significant changes to the ‘place of supply’ for VAT which applies from 1 January 2015.
Digital services include telecoms, satellite TV, the downloading of computer software, music, books and manuals.
Under the current rules the place of supply is determined as being in the country where the supplier belongs. From 1 January 2015 the ‘place of supply’ will be determined by the EU Member State of the consumer. This means that VAT could be due in each Member State in which digital services are supplied by a UK based business.
Suppliers have a choice between either registering in each EU country in which they supply digital services (potentially up to 27 separate registrations!) or they can elect to register under an EU-wide scheme known as the VAT ‘mini one-stop shop’ (MOSS).
MOSS Registration
Although registration for the VAT MOSS scheme is voluntary it would normally be beneficial for a business to avoid having to register for VAT in every Member State where they supply digital services to a consumer.
Unlike the normal VAT registration system, there is no minimum turnover threshold for businesses that would prefer not to register under MOSS so that registration would be required irrespective of the value of digital sales to individual EU countries.
MOSS Returns
VAT MOSS returns must be completed separately from the normal VAT return and must be submitted on a calendar quarter basis within 20 days of the end of a quarter together with the VAT due.
Once a business is registered under MOSS it should be noted that nil returns WILL be required in quarters where no TBES services have been supplied. Where an error is discovered on a VAT MOSS return the correction must be made online to the original return.
Small Businesses
It was initially announced that in order to register under the VAT MOSS scheme a UK business would also have to be fully registered for VAT. This could have resulted in small unregistered businesses with annual domestic turnover below the current £81,000 threshold having to charge VAT on their UK domestic sales.
Given the serious concerns of small businesses, HMRC are to permit simplified VAT registration arrangements for businesses who wish to register under MOSS provided their UK taxable turnover is below the registration £81,000 threshold.
Such businesses will still need to apply for a VAT registration but restrict any VAT input tax claims to amounts directly attributable to EU sales activities through the MOSS scheme.
Full details of these simplified VAT procedures for small businesses and other MOSS guidance can be found in Revenue and Customs Brief 46(2014) which can be accessed at the following link:
Revenue & Customs Brief 46(2014)
Urgent Action Required Prior to 1 January 2015
Businesses can register for the MOSS scheme with HM Revenue & Customs by clicking on the following link:
https://www.gov.uk/register-and-use-the-vat-mini-one-stop-shop
