Andrew Needham looks at some of the features and mechanics of the VAT MOSS system for businesses supplying digital services to private customers in the EU.
If a business supplies digital services to private customers (B2C) in the EU, it can register with HM Revenue & Customs (HMRC) for the VAT Mini One Stop Shop (VAT MOSS) scheme. Using the VAT MOSS allows businesses to avoid registering for VAT in each member state to which they supply digital services.
Registering for VAT MOSS
Businesses that are already VAT registered in the UK can register for the VAT MOSS scheme using HMRC online services. If your business is not already VAT registered (turnover below £82,000 per annum) it will have to register for UK VAT before registering for the VAT MOSS, but you don’t need to account for VAT on sales to your UK consumers.
Businesses must register for VAT MOSS by the 10th day of the month following their first digital services supply in another EU member state.
Submitting returns
The VAT MOSS returns are required each calendar quarter (end of March, June, September and December) so may well not coincide with a businesses’ normal VAT returns. Provided that when you registered for VAT, you selected ‘supplies of digital services (below UK VAT threshold)’ as your business activity, HMRC will ensure that your UK VAT return period is aligned with the VAT MOSS return period, so you can complete both the UK VAT Return and the VAT MOSS return at the same time. The return is due by the 20th of the month following the end of the VAT MOSS return period. Therefore, the return for the period ending 31 March would be due by 20th April.
It’s still important to monitor your UK taxable turnover, as once that exceeds £82,000 per annum you have to start accounting for VAT on your UK sales.
If you weren’t previously registered for UK VAT, but had to do so in order to register for VAT MOSS, you don’t have to charge your UK customers VAT. Even though you are not charging UK VAT you still have to complete a UK VAT return. You can complete a ‘nil’ return or, if you wish, you can claim back the VAT you incur in making B2C supplies of digital services to other member states. You still won’t be able to reclaim the VAT on the costs relating to your UK sales.
Example 1 - Claiming back VAT
You buy a computer that you use generally in your business and 70% of your sales are to the UK and 30% to other EU member states. You can claim back 30% of the VAT on the purchase.
The same principle would apply to the VAT on your overheads.
Accounting for VAT
If a business charges customers a flat rate VAT inclusive price then it will need to calculate what proportion of that price is VAT in order to be able to complete the VAT MOSS return.
Example 2 - VAT-inclusive sales
You sell an e-book for £10 including VAT, regardless of where the customer is based. The amount of VAT in that £10 will vary, depending on the VAT rate applicable.
To calculate the VAT you should use what is known as the ‘VAT fraction’ for the country. If you divide the total sales by the VAT fraction the result is the amount of VAT contained within your total sales. The VAT fraction is calculated as follows:
(100 + VAT rate) ÷ VAT rate = VAT fraction
Practical Tip:
If you supply B2C digital services to other EU member states you will have to register for VAT MOSS and submit returns every calendar quarter. If your UK turnover is below the VAT registration threshold, you will need to register for VAT, but you don’t need to account for VAT on your UK sales.
