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VAT: Tackling the new MOSS scheme

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24th Feb 2015
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The Mini One Stop Shop (MOSS) scheme was introduced on 1 January 2015 to ease the impact on affected suppliers of the new VAT laws which came into force at the same time across the EU. Kevin Hall, senior VAT consultant at Gabelle, takes a look at the registration process and says there are some positives to take away.

Who is affected?

Any supplier of broadcasting, telecommunications and electronic services to non-business customers (consumers) is now required to charge VAT in their customer's country.

For UK suppliers of such services, the new rules require them to register for and charge VAT in all their customers' EC member states. Previously, they had only been required to register for VAT in their ‘home’ member state; and in many cases they had not been required to register for VAT at all, if their sales fell below the local VAT registration threshold (£81,000 in the UK). This new requirement therefore has a significant impact on their business and recordkeeping systems, their pricing structures and ultimately their profits.

Using HMRC’s new MOSS scheme, VAT registered businesses can avoid the requirement to register for VAT in overseas states. However, they will still be required to charge VAT at the rate in force in their customers' EC member states.

For non-EC suppliers, the new rules will apply to them too.  This means charging VAT on their supplies of such services to consumers in the EU. Many non-EC suppliers find these new rules difficult as VAT is an alien concept to them. The new VAT rules only apply to services of the kind described above, but sales via the internet of goods to consumers in the EC might still be caught by other VAT rules, particularly if the supplier imports the goods and stores these in the EC prior to sale.  Particular attention is therefore required to sales of all kinds by non-EC suppliers.

MOSS is also available to non-EC suppliers, but in a slightly different version known as the ‘Non-Union Scheme’. This will enable the non-EC supplier of such services to register in the UK and to account for VAT in all EC member states without registering for VAT there.

Is the change all bad? There are some positives

The VAT on relevant purchases can be recovered, reducing the new VAT liability for suppliers who were not previously required to charge VAT.

For those suppliers which neither wish to register for VAT in other EC member states nor wish to register for UK VAT in order to use the MOSS scheme because they will have to charge VAT to their UK customers, HMRC has announced that they will accept UK VAT and MOSS registrations without requiring such suppliers to charge VAT to their UK customers, at least to the point where the UK VAT registration threshold would normally be breached.

However, this is small comfort in an industry in which suppliers are now expected to register for and submit returns for two registrations (UK VAT and MOSS); in which the profit margins (or price) will now be affected by the country in which the customer is located; and in which the sales and record-keeping systems have been made more complex.

Two registrations

The MOSS registration requirements are different from those for UK VAT registration. This will make it necessary to devise new information-gathering, return-submission and recordkeeping systems.

MOSS returns are to be submitted within different deadlines (20 days), errors are corrected differently, even the period of return is fixed at calendar quarters (the majority of UK VAT returns are not on calendar quarters).

Records for MOSS must be kept for 10 years from the end of the year in which the transaction occurs, longer than the six years required for UK VAT records. 

Poor compliance is penalised by excluding businesses for two years. This sanction will prevent the business from using the MOSS scheme in any EC member state, with the result that the business will be required to register for VAT in each of its customers’ EC member states. 

To de-register from MOSS, the business must inform HMRC at least 15 days before the end of the quarter. 

Sales systems and margins

MOSS also fails to address various other issues introduced by the new VAT rules. Two examples are mentioned below.

Suppliers are required to keep two items of non-contradictory evidence to determine a customer’s member state, in order to justify the rate of VAT applied to each sale. This makes more complex the process of a customer purchasing a digital product, including purchases as simple as a 79p download. HMRC has relaxed this requirement, but only for micro businesses and only temporarily. Such businesses are permitted to rely on their payment service provider's evidence for their customer location. From 1 July 2015, micro businesses will be required to collect two pieces of evidence, as is required of other businesses already.

This requirement might be eased for all digital suppliers if HMRC accepts that the country of the consumer can be self-certified by the consumer. However, at the time of writing this is still in discussion with HMRC. There are other simplifications for the evidence for a consumer's location, but these only apply in certain specific cases such as mobile phone airtime.

The new rules also affect pricing systems and profit margins. The rate of VAT charged now depends on the customer's country, but rarely can prices be adjusted according to the customer's country.  Instead, the VAT charge is suffered by the supplier and the price is determined by what the market will support. As a result, suppliers' profit margins in high VAT rate countries diminish or become losses, and it is difficult to retain effective budgetary control particularly for small businesses.

Given the additional burdens placed upon all such suppliers, it is hoped that HMRC will use a ‘light touch’ when dealing with businesses affected by the changes.

Practicalities

Adjustments may be needed to the systems for any business, even when taking advantage of the MOSS scheme. Preparations should begin immediately to ensure these details are considered fully and any changes are implemented as smoothly as possible. 

Kevin Hall is a senior VAT consultant at Gabelle.

Replies (5)

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By Paul Soper
26th Feb 2015 12:46

Great article, fair summary but...

One thing that has been discovered by some sole traders is that the HMRC website prevents them from registering for the MOSS - it seems that the system has been set up only to allow MOSS registration from "businesses" - the workround seems to be to acquire a new government gateway ID as a business and then register for the MOSS scheme! 

A further issue is the date at which various governments want registration to occur.  To use the MOSS for January to March 2015, if there has been a sale in January HMRC insisted on registration by February 10th - technically that would then require registration in the member state of the customer but many of these countries want registration to occur BEFORE the beginning of the month in which the first supply is to take place - this is a lunatic position as e-services are by definition those that take place automatically, without significant human intervention, and a trader cannot be aware that a transaction has taken place until after it took place!

There is also evidence that most EU countries have given very little publicity to the new rules and so most small traders, probably numbered in millions, have not registered - only some 8,000 MOSS registrations seem to have occurred so far with the majority of those, by a long way, in the UK!

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By jiatbanus
28th Feb 2015 11:09

MOSS

Seems to me like just another EU nonsense dreamed up by some of the many Lawmakers who have nothing better to do than to dream up laws, rules and barriers to business. The rest of the EU will ignore it and the UK will print a 300 page booklet on how to deal with it, including a list of fines and sanctions for non-compliance - monitored by a new HMRC control office to handle it. 

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By Paul Soper
28th Feb 2015 19:02

If only...

Each country has the right to fine and penalty but NOT HMRC!!!  Soi if you make sales in 10 countries and submit the MOSS return late EACH country has the right to impose fines/penalties etc in accordance with their own domestic law.  I really pity the first person to get hit!

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Head of woman
By Rebecca Cave
02nd Mar 2015 16:35

Why so few MOSS registrations across the EU?

According to VAT Live by Avalara there have been only 7000 MOSS  regstrations across the EU and that includes 500 registrations from outside the EU.

Why is this? Have all small businesses - in the UK and elsewhere decided to stop selling to non-buisness customers in other EU countries, or are they all ignoring the electronic selling rules?

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By Paul Soper
02nd Mar 2015 16:57

Ignorance

Not ignoring - ignorant of it.  The move to taxing at the place of consumption for B2C supplies (recommended by the OECD, adopted now by the EU and a couple of other countries so far) is such a fundamental change that it should have been widely discussed, promulgated, advertised notified etc - and, given that it is aimed at taxing multinationals the impact on smaller business should have been realistically considered, which clearly it wasn't.  From Facebook discussion groups most EU countries have made very little reference to it at all.  In the UK it was only the self-serving publication by a company called Taxamo who wanted to sell IT solutions that alerted many people to the dangers and even they assumed that it was larger business that would be affected.  It seems that EU ministers rejected the idea of a de minimis registration threshold at a realistic level that would avoid unnecessary cost for tax administration and protect very small businesses.  In Spain, which has no de minimis for VATable activities (and coincidentally one of the highest levels of unemployment in the EU - is there a connection there?) I suspect that small traders will just ignore it as they probably ignore VAT anyway.  It is only in the Protestant north that guilt prompts traders to comply, but indeed, why so few?

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