Andrew Needham highlights the introduction of the Mini One Stop Shop and its effects on businesses.
If you are an unregistered business selling on-line downloads to private customers in other EU Member States, recent VAT changes will affect you and mean that you will now have to register for VAT.
From 1 January 2015, new VAT rules were introduced which affect all businesses selling broadcasting, telecommunications and e-services to non-business customers (B2C) in other EU Member States.
‘E-Services’ are services that are heavily reliant on the internet for their execution and include the following services:
- video on demand;
- downloading of apps;
- music downloads;
- e-books;
- gaming; and
- anti-virus software.
The changes mean that B2C sales to customers located elsewhere in the EU will no longer be subject to UK VAT, but will be taxed in the country where the customer is based.
For example, if a business sells a new app for a smart phone or tablet to a private individual based in Italy, UK VAT of 20% will no longer be chargeable, and instead Italian VAT (which is currently 22%) will need to be charged and accounted for to the Italian tax authorities.
What does this mean for businesses?
To prevent the need for businesses having to register for VAT in every country where they supply e-services to non-business customers, a VAT Mini One Stop Shop (‘MOSS’) is being introduced.
This is an online service from HMRC that will give businesses the option of registering in the UK to account for VAT on B2C sales of these services in all of the other EU Member States (at the appropriate rate for each country) by submitting a single return.
The good news is that this service will significantly reduce the administrative burden that would have existed if a requirement to register in multiple countries had arisen.
If you are not registered for UK VAT as you are trading below the current VAT registration threshold (currently £81,000), you may believe that these changes will not affect you. Unfortunately, this may not be the case.
When you make supplies to another EU Member State there is a nil VAT registration threshold if you make B2C sales, so you will immediately have to register for VAT under a MOSS registration to account for VAT in the EU Member State.
Welcome simplification
If you have to register for VAT under the MOSS rules and your UK taxable turnover is below the UK VAT registration threshold, you may use the MOSS to account for the VAT due in other EU member states, but you do not need to account for VAT on sales to your UK customers.
In these circumstances, you must apply for UK VAT registration and restrict any VAT refund claims you submit to HMRC to amounts directly attributable to your cross-border EU sales activities, on which you will be accounting for VAT through MOSS.
Practical problems
A difficulty that will arise in practice is that when you make online sales you probably won’t know where your customer is located. If a business intends to continue making B2C sales to customers in other EU Member States you will to know what country they are based in so that you can account for the correct amount of VAT.
Trap:
As all the Member States have different VAT rates you could potentially have 27 different prices for the same downloads. Further information will therefore need to be obtained from them to ensure that the correct VAT treatment is applied.
Practical Tip:
If you sell online services to non-business customers in other EU Member States you will have to register for VAT under the MOSS rules and account for VAT on all of your EU sales.
