More VAT changes are on the horizon. From 1 January 2015, businesses in the broadcasting, telecommunications and e-services sectors will need to change the way in which they apply VAT to their digital products. All Business to Consumer (B2C) organisations within these sectors will be affected and therefore need to take note.
What do the changes involve?
Currently the amount of VAT payable on your digital products is determined by your businesses location; however, from January 2015, the VAT rate will be dependent on your customer’s location. This will mean that you will need to keep track of what countries your customers are based in and the VAT rate that will need to be applied. To try and help businesses adapt to this new process, the EU member states have agreed upon a new process and the records your business needs to take.
Who is exempt?
The following businesses are exempt:
- Business to Business (B2B) organisations.
- B2B and B2C organisations – only the B2C side of your business will be affected.
- Businesses who supply customers through an agent (e.g. online marketplace, store or platform). You will be treated as a B2B supplier and will not be affected. However, the agent will be required to use the new VAT process.
After reading this, I’m sure you are wondering how you are expected to register for VAT in every EU member state where you have a customer. The very thought can seem extremely daunting and time consuming. However, do not fear, help is on the horizon with VAT MOSS (VAT Mini One Stop Shop). VAT MOSS is an online service that you can register your business for. Ideally, you need to register in the country in which your head office is situated. The online system streamlines the VAT process, meaning that you only need to submit a single VAT MOSS return on a quarterly basis. This return will cover all of the services or products you have supplied to other EU states. HMRC will take care of the rest, sending electronic copies of your return, on your behalf, to the member states you have supplied services to. The VAT rate used will therefore be based on the individual member states.
VAT MOSS will streamline the process somewhat; however, it is important to remember that these returns are in addition to the ‘normal’ VAT returns, so it is important that you do prepare yourself, in advance, for the additional administrative work this new VAT reporting will bring. Don’t wait, registration is from October 2014 and much preparatory work will be needed by anyone affected by these new rules.
Although MOSS has been designed to simplify this process, in reality it will be a huge burden on UK businesses. For instance, there is no de minimis level for registering for MOSS, meaning that businesses not liable to be UK VAT registered will still be required to register for MOSS, unless they wish to register for VAT in every member state in which they make sales. It will not be possible to register for MOSS without being registered for UK VAT. Every small business in the UK registering for MOSS will need to account for UK VAT on UK sales (even if the value of these sales is below the UK VAT registration threshold!). Furthermore, although a registration for MOSS is applied for and maintained in the UK, the VAT legislation of each destination country will apply and enquiries into the accuracy of the returns may be instigated by any EU country (through the UK VAT office). The filing deadline is 20 days from the end of the VAT period and records need to be kept for 10 years. It is suggested that evidence must be held to support the decision as to where your customer is based – two pieces of non-contradictory evidence – so you will need to obtain this for every sale – a nightmare for low value large volume sale businesses. And for all those of you breathing a big sigh of relief as you do not operate in the broadcasting, telecommunications or e-services sectors, beware! There are serious proposals for these new arrangements to be applied to a variety of other types of situations in the future, such as the sale of goods to unregistered customers or of services other than those currently included. Watch this space!