The Revenue have made changes to the VAT place of supply rules affecting telecommunications, broadcasting and e-services which will have significant impact on their administrative duties if they fail to register before the 1 January 2015 deadline. Every business involved in such activities will have to collect VAT at the rate where the client resides. The change ensures that supplies of telecommunications, broadcasting and e-services are appropriately taxed in the member state where they are consumed.
So what are the changes? There are two changes. The first affects the VAT place of supply rules and will mean that supplies of telecommunications, broadcasting and e-services made by a business established in one EU member state to a private consumer located in another member state (“intra EU B2C supplies”) will be taxed in the member state in which the consumer is located. These services are currently taxed where the business supplier is established. This change will ensure that in future they are taxed appropriately where they are consumed.
The second change is the introduction of the VAT Mini One Stop Shop (MOSS), an online service that will give businesses the option of registering in the UK to account for the VAT due in respect of B2C supplies of these services in all the other Member States (at the appropriate rate of tax in each state) by submitting a single return to HMRC.
Unless they opt to register for MOSS, businesses that make intra EU B2C supplies of telecommunications, broadcasting and e-services will be required to register and account for VAT in every Member State in which they have customers. MOSS will give these businesses the option of registering in just the UK and accounting for VAT on supplies to their customers in other Member States using a single online MOSS VAT return submitted to HMRC. This will significantly reduce their administrative burdens.
These changes only apply to output VAT. Input VAT will continue to be reported and recovered as today. Furthermore, the EU business will have to report all other supplies (e.g. sales of goods and other services) by the means of the regular VAT returns as they do today. The changes take effect from 1 January 2015, although businesses will be able to register for MOSS with effect from October 2014. The EU legislation for these changes is already in place and this will be incorporated into UK primary legislation by Finance Bill 2014. Member states have been pushing for these changes in the name of tax harmonisation (i.e. removal of tax competition). So the benefit of setting shop in a low VAT jurisdiction will disappear in 2015 although it also unfortunately means an additional burden for small businesses. HMRC will publish full guidance about the changes well in advance of their taking effect on 1 January 2015, and we will contact all our clients that are effected to ensure that they comply with these changes.