Countries are Implementing VAT MOSS Rules
- Posted by admin
- 16 January 2018
VAT MOSS, also known as VAT Mini One Stop Shop, is a new regulation that went into effect on 1 January 2015. The regulation, which affects digital products sold in the European Union, makes VAT chargeable at the place of purchase rather than the place of supply.
The regulation is a type of Goods and Services Tax (GST) designed to generate tax revenue for the EU.
The goal of VAT MOSS was to prevent major online retailers, like Amazon, from funneling sales through low-VAT countries. But the regulation inadvertently affects sole traders and smaller companies with fewer resources.
News of the regulation sent online retailers in a panic – rightfully so. But it's important to note that the regulation applies to businesses selling digital products to consumers. If you offer services to businesses as a designer, for example, the VAT MOSS rule may not apply to your business.
A Primer on VAT MOSS
There are two types of VAT MOSS scheme:
The Non-Union VAT MOSS scheme applies to businesses that:
- Are based outside of the EU
- Provide digital services to EU consumers
- Do not have business or fixed establishments in the EU
The Union VAT MOSS scheme applies to businesses that:
- Are based in the United Kingdom, or are based outside the EU and have a fixed establishment in the United Kingdom.
- Provide digital services to EU consumers.
- Are registered for UK VAT.
If your business's turnover falls below the £81,000 UK VAT threshold, you'll still need to register for UK VAT to use the Union VAT MOSS scheme.
Who Does VAT MOSS Affect?
VAT MOSS rules have caused confusion – and a little chaos – amongst retailers in the EU. However, many creative professionals are unsure of whether the regulation apples to them.
The VAT changes apply to anyone selling the following to consumers:
- Web hosting services
- Online magazines
- Website supply
- Text or images, including screensavers, photos, e-books and other digitized documents, films, music and games
- Software updates and supplies of software
- Distance maintenance of equipment and programs
- Advertising space on websites
The key thing to remember here is that the VAT MOSS regulations apply to digital products sold to consumers. If you sell to businesses, the VAT changes will not affect you.
The regulations can be muddy at times, making it difficult to determine which products fall under the regulation.
Of note, the regulation appears not to apply to live services. Live webinars would not be covered by the new rules.
If you offered an online course with pre-recorded videos, downloadable PDFs and support from a live tutor, the new regulations would not apply. But if you offer an online course with pre-recorded videos and downloadable PDFs, the new regulations would apply.
The addition of a "live" service is something to consider if the VAT MOSS rules apply to your business.
How Do You Pay VAT MOSS?
If the new regulations apply to your business, you will need to register for VAT MOSS when you make a sale. A notice must be sent to HMRC by the 10th day of the month following the month that you supplied the digital product.
If you make a sale in March, you'll need to notify HMRC about the transaction by 10 February to register for VAT MOSS.
Your business will need to be VAT registered if you're selling services online, but you won't lose the £81,000 threshold.
Buyers will have to provide a billing address and the member state of which they are a resident.
There are two ways to comply with the new regulation:
- Register for VAT in every EU state you have customers. There are 75 different VAT rates in the whole of the EU.
- Voluntarily register for VAT in the United Kingdom, and submit a VAT MOSS return online. HMRC will then give a portion of the payment to the tax authority in every relevant member state.
Voluntarily registering for VAT is the simplest solution, but doing so will require you to charge VAT on every product you sell – no matter the cost. With standard VAT registration, there's an £81,000 threshold. VAT MOSS has no minimum sales amount.
VAT MOSS returns must be filed quarterly and cannot be paid through direct debit.
Businesses are free to de-register from the VAT MOSS scheme at any time. If you decide to leave, you'll need to give the HMRC notice at least 15 days before the end of the quarter.
Once a business de-registers, it cannot re-register for at least two calendar quarters.
VAT MOSS Concerns and Business Impact
The VAT MOSS regulation does come with concerns and has the potential to hit small businesses particularly hard.
Voluntarily registering for VAT, the least-complicated solution, requires sole traders and small companies to pay 20% of their revenue in VAT. Businesses are also required to keep personal information related to each consumer, which puts them into data protection laws.
The MOSS scheme requires businesses to provide two of the following bits of information about each consumer:
- IP address
- Bill address
- SIM country code
- Bank location
- Location of fixed land line
Records of this information must be kept for ten years.
For many small companies, having to ask for personal information can hurt sales. And if you are selling to businesses, you'll need to prove that they're a business by having their VAT numbers. If you're a freelancer working with other freelancers that are not VAT registered, they will be considered consumers and the rule would apply to your business.
To work around this issue, you might consider selling your products through an established store or an online marketplace. In this case, the platform through which you're selling will take care of VAT MOSS compliance. Of course, selling through online marketplaces eats through a business's profits, as these platforms take a percentage of sales as commission.
For businesses nearing the £81,000 threshold, many experts recommend simply registering for VAT and growing your business. But if you have a lower turnover, they recommend stopping that part of the business.
Failing to comply with VAT MOSS regulations may cause you to face an "unlimited" fine.