The VAT rules will be changing from 1 January 2015 for broadcasting, telecommunication and electronic services. This change imposes a new administrative burden on suppliers, which will require them to begin charging VAT in their EC customers’ member states.
Practical issues arising from these new rules include how to identify the place of supply, how to determine the tax rate applicable, the language barrier, exchange rate differences and the process for reporting VAT.
Under the new legislation, all B2C sales are subject to VAT in the EC customers’ member states irrespective of the amount. Either the supplier must register for VAT in each member state, or register for the Mini One Stop Shop (MOSS). Under MOSS, the supplier reports and pays VAT in the EC member state where it is registered for VAT (e.g. the UK), without registering in each of its EC customers’ member states. It’s use is, however, not without complication and is subject to audits at the request of other member states over a 10 year period. On 28 July 2014, HMRC issued a consultation paper. This contains draft amending legislation for the MOSS and invites comments before 26 August 2014.
We are aware that there are many practical issues with the new regime as it stands. For example, the draft MOSS legislation would not apply to businesses trading below the VAT registration threshold. These businesses would therefore be required to register for VAT in the EC member state of each customer of broadcasting, telecommunication and electronic services (e.g. an app, download, mobile or similar service). This will be expensive and impractical for small businesses. An alternative would be for small businesses to register voluntarily for VAT in the UK and take advantage of the new MOSS; but this would give rise to a VAT charge on all their supplies in the UK. Such issues should be brought to the attention of HMRC through the consultation if it will cause significant damage to businesses in affected industries.