Five common VAT MOSS misconceptions

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Les Howard
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A lot of material has appeared online about the Mini One Stop Shop (MOSS) in the past few weeks - much of it misguided, writes Les Howard.

New websites, blogs, and Facebook groups have sprung up, trying to cancel MOSS, defer its introduction, and help small businesses to mitigate its impact.

During December, HMRC actually relaxed some aspects of the new regime, apparently in response to the efforts of groups representing small businesses. But the actual content of the available material is decidedly patchy.

At the risk of attracting some criticism, I offer five misconceptions about MOSS that I have come across.

1. MOSS is complex

MOSS is a simplification measure. A strict application of the rules relating to Place of Supply and VAT registration would require many businesses to register for VAT in every EU Member State in which they make any supplies, irrespective of value. The administrative burden would be huge.

With effect from 1 January 2015, the Place of Supply for B2C supplies of ‘digital services’ is the place the customer is located.

The European Court ruled in 2010 that a VAT registration threshold could only be applied to a taxpayer within his/her own Member State. 

Supplies made, or deemed to be made, outside the Member State cannot benefit from the ‘concession’ of a threshold.

This might be stated another way. For example, if I, as a UK taxpayer, trade in several member states, can it be right that I enjoy an effective VAT registration threshold of that total value of the thresholds of those Member States? I might make sales in the hundreds of thousands before charging VAT anywhere.

2. MOSS in the problem

The real problem is the effect of the UK’s excessive registration threshold. From memory, the real reason this has been escalated is the comparatively high administrative cost incurred by HMRC dealing with smaller taxpayers.

Successive Chancellors have suggested that even minor threshold increases allow thousands of SMEs to deregister. The effect is that many SMEs and micro-businesses have been duped into thinking that VAT-free trading is the norm.

When changes in legislation mean that those businesses actually do have to register, and administer VAT, it has come as a nasty surprise.

3. I don’t know what services MOSS applies to

One concern is that the definition of digital services is differently interpreted throughout the EU. This is necessarily true, and applies to all areas of VAT.

But the definitions of telecommunication, broadcasting, and electronic services are found in the Implementing Regulation 2006/112/EC, arts 6-7

Rather than fret about the definitions applying in different member states, read the relevant article, then make a note as to why your services do or don’t fall within the articles.

It is also unlikely in the extreme that one member state will take action against a taxpayer in another member state making a digital supply of €9.99.

4. Small businesses will have to close

This has been one of the arguments presented to HMRC to allow some relaxation of the MOSS rules.

British businesses have a great reputation for innovative solutions. They are fast-moving and flexible, adapting to challenges. And MOSS is just another challenge.

I have dealt with a number of businesses, and helped to provide support as they introduced changes to their services, their contracts, and their operations, so as to mitigate the effects of MOSS. In one case, the change generated substantial new business, which would, in time, more than compensate for the one-off costs of the changes.

5. MOSS will cost me money

One of the key areas of relaxation allowed a UK business to register for MOSS, and ignore its UK digital sales. This has been a cost-saving concession for some businesses.

In contrast, where a UK based SME makes digital sales within the UK, the EU, and outside the EU, it may be worth accounting for output tax on UK sales.

The reason for this is that input tax is deductible in relation to supplies made to persons outside the EU, without the necessity to charge VAT. The statutory reference is VAT Act 1994, s26(2)(b), and this is referred to in Notice 700, para 10.2.

Every case will be different of course, but do your sums.

Les Howard is the founder of vatadvice.org and a regular AccountingWEB blogger. His mission here is to challenge some of the assumptions that have grown up around the hated VAT e-filing system for those making digital sales to the EU.

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22nd Jan 2015 20:41

Head above parapet

Well done Les,

Some will disagree, but well said anyway!

I think, for me, the most annoying thing is not the tax,as you rightly say, collecting tax everywhere is probably fairer.  It's the admin, that has you being required to collect and hold all kinds of data for a few quid in VAT.  Put simply, it might cost more to collect in many cases than it will earn.  I am possibly as biased as you in that I only tend to deal with people who can pay me and that means a reasonable size, because this kind of expertise don't come at a bargain!  So many of the people most impacted will never even need or can afford an accountant, never mind a VAT advisor.

Anyway, whatever we think, the EU seems to be thinking there is something awry and is getting knives from other countries MEP's and MP's too, so we'll have to see.

Wayne

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22nd Jan 2015 21:34

Reliable dataset please
The main problem my clients and I face is finding one central, reliable and machine readable dataset, which tells us (tells the code in our websites) which rate applies to which supply. I asked HMRC for that 8 weeks ago. Letter acknowledged, but no real reply yet!

You say MOSS may be easy! But charging the right rate to the right consumer is not!

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22nd Jan 2015 21:55

VAT-inclusive sales

It might be easier for users of VAT-MOSS to have a VAT-inclusive price, applicable in all EU Member States. Do the maths first, so that the overall margins are not too tight. But it saves the problem of trying to add VAT at different rates to supplies in different Member States.

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22nd Jan 2015 22:39

Sensible
I think that's a good idea Les. It's a bit more difficult around the ebooks area though. But whatever you charge, you have still got to fill in a return and declare the correct VAT rate. And you need the data for that!

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17th Mar 2015 18:02

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23rd Jan 2015 00:38

Come on...

I think we're discussing different scales of business here...

For a business turning over significant amounts it is true that VAT MOSS is a simplification - well when compared with registering in each of 27 member states in addition to your own - of course it is.  But the protests are coming from businesses so small that they face a choice between registering in one member state to account for less than 50p worth of VAT or registering under the MOSS "simplification" - well - I suppose that is a simplification but is it worth it for HMRC who have to process these trivial sums or the other member states who have to police the system?

A de minimis limit makes sense for both businesses who trade on this scale - a knitting pattern for example with a value of £4 - an mp3 issued by an obscure band with a value of £9.99 - but also for the member states who must police this system.  I am in contact with thousands of very, very small businesses who want to comply but find it frankly ludicrous.  The UK government themselves wanted a sensible de minimis limit ( it doesn't have to be the same as our registration limit, more of that in a moment, but it has to be cost effective for small businesses and taxation administrations) but certain governments (Spain who have a zero registration threshold, a dormant economy and no hope of recovery with enormous rates of unemployment - hmm could there be a link there?) didn't want it - at this stage we could have exercised our veto BUT... we didn't creating this frankly ludicrous situation we now find ourselves in.

The UK de minimis limit is the highest in the EU - this is true, but it was as a result of a decision made by Customs and Excise when VAT was introduced before we became members of the EU and 5 years before we became subject to EU (EC as then was) directives.  The same is true of our zero-rating - we are permitted to retain this EU anomaly because we had it in 1978.  Since then governments in the UK have attempted, and usually succeeded to raise our registration limit in line with inflation (we can't increase it any more) to minimise the number of domestic businesses forced, rather than choosing, to be registered.

You say "When changes in legislation mean that those businesses actually do have to register, and administer VAT, it has come as a nasty surprise." - Yes it does but the businesses who are protesting in such numbers are often businesses whose turnover is 10% of the registration threshold, or even 1% of the threshold.  These are businesses that many accountants rarely encounter but according to the government's own statistics there are over 1,000,000 of them in the UK alone!

You querty whether small businesses will close - again what do you call a small business?  We know that the smallest measure of business activity within the EU is less than 10 employees and turnover of less than €2,000,000 - even our accounting standards will recognise "Micro businesses" at around €1,000,000, but we are talking about mums with a kitchen table business bringing in pin money - £20 per week will be good for some of these businesses - are you seriously, for real, suggesting that they should comply with VAT to this extent.  Offhand, without checking - how many different rates of VAT are there within the EU? There are already hundreds of small businesses closing in panic but businesses outside the EU, mainly in the US, who now refuse to supply customers within the EU!

Even if you register with MOSS you still have to comply with the VAT rules of each state, it is becoming increasingly clear as we begin to compile hard evidence of interpretation from different countries that that simply referring to Implementing Regulation 2006/112/EC, arts 6-7 as you suggest is hopeless.

France, it would seem, has decided that the supply of a pdf document is NOT an e-service, even though most other countries think it is, but the UK thinks that if you include it in a non-automated email it isn't, but France also thinks that any business which is small enough to be an auto-entrepreneur cannot charge VAT and so doesn't need to bother about the new rules.  However the other 27 member states would beg to differ.  Of course a French entrepreneur then finds themselves unable to register for MOSS but potentially penalised by the other 27 member states.  Have you seriously, I mean seriously, thought about the real implications of these new rules?

In the meantime our wonderful HMRC have created an Alice in Wonderland situation where businesses who only make digital supplies can "register" for VAT but declare their UK sales as zero, even though they aren't, to allow them to register for a MOSS system that has been criticised by the government's own IT watchdog as not being fit for purpose, where trying to follow a link to register doesn't work, where someone who has gone through the government gateway and submits tax returns as self-employed has to register again as an organisation in order to be allowed to register for VAT and declare their UK sales are zero in order to be allowed to enlist for the quarterly MOSS returns. This is illegal even though they claim it is within their powers or care and control.  In Ireland, on the other hand, you do not need to be VAT registered to file MOSS returns as they require separate registration - although how you recover VAT attributable to these supplies is far from clear.  HMRC will allow such a business to file nil UK returns, a lie, but claim back in the UK return the VAT attributable to the EU MOSS supplies - How? I mean legally how?

A wonderland where they are solemnly assured that if, in a particular quarter they have zero sales then they must, like the CIS system, file a zero return but where HMRC have no powers to penalise them if they fail to do so, because the failure to file your simplified MOSS return exposes them to be penalised by each and every one of the other EU states!

I find your dismissal of this campaign frankly offensive to the thousands of 'nano' businesses out there who want, yes they want to comply with these crazy rules, but who are being driven to distraction by a bureaucratic nightmare.

If anyone is interested in leaning more about the sensible campaign to introduce a sensible de minimis limit to the benefit of these 'nano=sized' businesses can I suggest you follow these links - https://www.facebook.com/groups/DigitalVAT2015/

- https://www.facebook.com/groups/euvataction/ = you have to ask nicely to join this one

-http://euvataction.org/

 

 

 

 

 

 

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23rd Jan 2015 00:57

A shorter response

Sorry about the length of the previous post but consider this.

One member of one of the campaign groups has today made her first EU sale and must now decide whether to register for MOSS in the UK or to register in the country in which this sale was made.

How much VAT is involved? 36pence - yes 36 pence.

Les - are you seriously suggesting that this system is simple and sensible?

A reasonable de minimis limit that takes this type of transaction outside the net has to make sense - doesn't it?

 

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23rd Jan 2015 05:53

B2B or B2C
Aside from being an accountant, I have published two books, on paper. I'm writing my third and plan to release it in both paper and eBook. I built www.vatmossvatmess.com a few weeks ago as an experiment (I can write code and prefer PHP and mySQL).

In order to give my B2B or B2C customer the correct info on a VAT receipt, I need to call on a reliable dataset.

My alternatives are to subscribe to a 'paid for' resource which collates VAT rate info on a daily basis, or do that myself by checking the Commission site every day for updates to this PDF . . .

http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/ho...

Throughout Nov and Dec that PDF was the Aug 2014 edition. Today, I see that it's the Jan 2015 edition and for the first time (bottom of page 19) there is a new classification called 'eBooks'. However, I'm guessing that paying for web hosted training videos (provided by one of my clients) comes under 'pay TV'.

The problem is that the PDF is not consistently laid out and is not machine readable. I need a CSV file or similar, with a rigid and unchanging layout.

MOSS is a reporting system. MOSS does not help me prepare VAT receipts and distinguish between B2B and B2C.

When I launch my eBook I have no idea how many lots of £1.49 I'm going to make, nor which
countries will lead me to more sales. But if I get just one sale of £1.49 in one of the other 27 EU states I'm caught.

My paper books have given me sales in the order of a few hundred pounds. The publishing business is not VAT registered due to low sales and books are zero rated anyway. I'd be exceedingly lucky to ever hit 10K of sales, let alone 81K. Naturally I hope the eBook will be more widely available and more profitable.

This is the VATMOSS dilemma faced by all microbusinesses. Giving the customer a VAT receipt!

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By kjevans
26th Jan 2015 12:46

VATMOSSVATMESS

Even that has a 404 error for no-VAT registered busnesses to is that supposed to be a sarcastic comment on the situation? The micro businesses I have talked to have just stoped selling digitally to EU countries other than the UK. By far the easiest solution.

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23rd Jan 2015 06:38

Interesting
Would be interested if Les's views have changed with this extra info? More debate elsewhere...!!

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23rd Jan 2015 08:18

Unintended Consequences

For my nano-business there is an unintended consequence of the forced VAT registration and collection. It creates an unfair advantage for non eu companies (who will decide not to implement this). Let me explain.

My lead generation includes a very low cost impulse purchase. Before 2015 I could as for a minimum of information just enough to make the sale. Now I have to ask for more information and do some double checking. This creates more friction and means less sales. 

Imagine buying gum from a shop and being asked for your name and address while the shop next door in the rest of the world just takes payment quickly. Who do you use?

Online every extra step or extra info collected means less sales. While my US competition will not have the same problem. Because of these rules I will have to switch from a quick paypal button to a more detailed full cart.

Along with this as a nano-business I depend on platforms to manage my payments. Most of this platforms are external to the EU and are only now slowly adding any support for VATMOSS. Some of these platforms are unable to get clear answers to questions to implement this see http://euvataction.org/quiz/ if you think you understand the tax.

I currently place my product on multiple platforms as part of my marketing. To use VATMOSS I would have to withdraw my product from these platforms until they support VATMOSS. 

Like the government you fail to recognise the world of nano-businesses with turnovers of a few pounds to a few thousand. Lots of these business provide support to single mums, less able people and those trying hard to support themselves without government handouts. These rules put this sector at risk.

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23rd Jan 2015 09:17

EU and Non-EU

The new rules, of course, apply to sellers throughout the whole world, and if they are not based in the EU they are supposed to choose a country to register in and join a Non-union MOSS scheme.  In fact they should have been doing this for the last 11 years under a scheme, now withdrawn called VAT on Digital Services, VoES, and those businesses that did, in the States and Canada for example have been notified that they must now migrate to a Non-union MOSS.  Guess how many businesses registered over that 12 year period for VoES?  According to HMRC - 1,000!  There is a very real danger that small businesses within the EU will struggle to comply whilst many millions of similar businesses outside the EU will carry on, as before, without complying... and that makes no sense either.  By the way how many small businesses are there in the UK that might be affected - HMRC officially said 34,000.  According to the Department for Business Innovation and Skills there are 3,685,000 businesses in the UK which are sufficiently small that they have no employees, 70% of whom work from home.  31%, according to the survey, actively sell goods and services over the internet. This is NOT a small problem...

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23rd Jan 2015 09:32

More VATMOSS in more countries

<sarcasm>And no doubt we all know . . . </sarcasm>

. . . that from 1 Oct 2015 we'll all have to register in Japan and start accounting for Japanese VAT on our eSales!

http://www.vatlive.com/asia-pacific/japan-taxes-foreign-e-books-games-ap...

No, it's not a joke. All businesses selling into Japan will "have to comply".

It's time for a sensible, global solution, before we all have to account for 208 different VAT rates in 208 different countries.

 

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23rd Jan 2015 12:37

.

Hmm we are adopting out standard response to such rules - ignore as its too small to worry about.  Only clients with serious volume in the EU will be going this this dance. 

Many small business will be completely oblivious to the rules and can remain so

This is just another bit of legislation that will be widely ignored, and left unenforced at the small end. 

Keep your head down, say nothing and all will be fine is often the most pragmatic answer in the face of daft rules.

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23rd Jan 2015 13:05

Keep your head down isn't fine for everyone

ireallyshouldknowthisbut wrote:

Keep your head down, say nothing and all will be fine is often the most pragmatic answer in the face of daft rules.

That's easy for some people. But a lot of people running nano businesses also have health issues and lack confidence, and ignoring the rules will cause them a lot of worry and stress. It's fine for go-getting entrepreneurial people to take this in their stride, but a single mum, or someone with mental health issues, who's also under pressure from the risk of losing benefits, bringing up kids and trying to keep a roof over their heads doesn't need more stuff to worry about, however slight the chances of getting caught are.

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26th Jan 2015 14:07

Professional advice

Whilst I have told friends who will be caught by this (mainly small bands and music distributors with total sales, UK and EU, of less than £5k) that the reality is that they will not be pursued by HMRC for tiny amounts of VAT on their EU sales (in most cases under £100, so VAT even less), my professional advice cannot be to simply ignore it. ACCA and PII insurers would have a field day with that!

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23rd Jan 2015 12:58

It affects UK only sellers too

I'm working on a business plan that will provide products and services specifically for the UK market. Some of these will be digital. The content will relate to UK laws, regulations, market conditions, culture etc., and will be of little use to anyone outside the UK, except for general interest. I have no intention or interest in selling outside the UK, but will still get caught up in this, as I will need to check each online sale to ensure that it is not to a non UK EU customer.

I'm currently studying online marketing, and it's very clear that the first step in building a relationship with a customer is to ask for the very minimum of information from them. If I have to ask everyone for additional information to check where they live, just in case they happen to be outside the UK, I will lose a lot of potential business. And I will need to keep this intrusive data that has driven away potential customers for 10 years, in case I need to prove I haven't made an EU sale.

And what if an EU sale does slip through, where I owe 25p in VAT? I either have to send the customer a refund, so they get it for free, but I have to pay bank charges, or I register for UK VAT and MOSS, and have extra admin indefinitely. I'm an accountant and can cope with this if I have to, but it's a complete waste of time and effort, and will cost me and the government far more than anyone receives in benefit from it.

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23rd Jan 2015 19:55

Let's go through this point by point

1 & 2 moss is the problem and moss is complicated. You say no. Actually I think you’ll not find any major argument here in principle (apart from the obvious fact that at least in the UK the system implementation has been woeful). That the tool is rubbish is simply not the basis of the main thrust of complaint by small businesses, so I must say I think your point here is disingenuous. Those you speak of might be using the handle “moss” as shorthand for “EU VAT legislation” in which case the practical difficulties of implementation are easily demonstrable to you. The problem is NOT the uk’s high threshold (most of the businesses complaining are not anywhere near this threshold, in any case  - this is just a line being spun by the EU team to make this a UK only problem, and therefore dismiss it – else why are there now Dutch/French/German action groups springing up?).

 

Let me give you just a couple of examples of some if the real issues (and these are many and varied)

Sellers in the rest of the world are becoming more confirmed in the opinion that this is unenforceable and therefore choosing not to comply. It never mattered much of the odd seller of shoes shipped a pair to the UK without complying with VAT; they were never going to steal market share until they set up a shop in my local high street. But when your main market place is the web, and your product is available immediately anywhere in the world through a computer, this non-compliance is a serious competitive disadvantage. My main competitors now have a 20% price advantage That the EU would introduce this law BEFORE securing the treaties to ensure worldwide compliance is frankly a disaster for the EU digital economy at grassroots level.Website platforms are being deemed liable for VAT when those who sell through them are in fact paid direct to paypal accounts (sellers being either charged a small listing fee up front or invoiced a small fee based on actual sales) . These platforms don’t ever handle the money they are being asked to collect tax on. Their whole business model is being made impossible. This is hardly a small problem for them.Some of the biggest issues are around correct identification of buyers’ location. This is technically and practically a minefield. Not least because anyone with any technical know-how can hide or spoof their location to get a cheaper rate on a product. Legislation simply takes no account of this. For businesses with a high ratio of sales to employees checking and confirming every sale (when no postal address is required for a sale) is a nightmare.

Your point 3: I don’t know what services these apply to: again all very well to say that we should just take the view of our own tax office – but again the issue with this is again competitive advantage or disadvantage in a GLOBAL market. If the rules are not applied the same everywhere then some businesses will be at massive disadvantage.  Not to mention that people are honesty trying to comply here and the fact that they cannot get clear guidance is a scandal.

 

Your point 4: Small biz will have to close: they have in droves. EU VAT Action have collected 200+ biz that shut their doors on Jan 1st. Many, many rest of world biz have closed their doors to the EU. Even Google have closed certain of their paid services to the EU. Just check out the sudden proliferation of word press plugins that will allow website owners to block EU sales.  I’m sure they would have adapted IF they had been given notice. And many will adapt and reopen in time. This does not make the legislation a good thing.

 

Point 5: Moss will cost me money.  Lots of people have done their sums and the answer for small biz is ugly. Here's just my personal finding: every EU sale on my digital products will cost me 15% more – because this the extra fee a platform I use will be imposing to cover the additional admin they are incurring. It has literally doubled my admin burden overnight as I now have to handle 4 different platforms for sales in order to remain compliant. Economies of scale do not apply to tiny businesses.

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23rd Jan 2015 23:10

Hi Les...

Would you like to comment on some of the postings that have been added, not only here but various Facebook sites where you posted the same article whilst asking for forgiveness for being provocative?

This is a real problem that has been ignored because the EU is too big and too stupid to realise that when these rules were originally drafted and negotiated back in 2008, to build on the "success" of VoES (only ever got a 1,000 participants), the online world was vastly different to the online world today which is being forced, strong-armed, into accepting rules which are just inappropriate.

Looking forward to your comments...

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24th Jan 2015 09:12

Response

Having been invited to respond on several points, here is one:

'How can I confirm a buyer's location if he disguises his location?'

The legislation asks for two pieces of non-contradictory evidence. In the circumstance where the seller obtains such evidence, and has no obvious suspicion that such evidence is misleading then he has satisfied the legislation. He cannot be penalised for being tricked!

So, don't lose sleep over that one.

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24th Jan 2015 10:21

Agreed Les...

Thanks for the comment Les - the problem, for me, is that you used a header for your piece "Five misconceptions" but they aren't, misconceptions that is.  Would you like to add your comment in about evidence to be retained (for 10 years people!) as a sixth misconception - because if so it is the only one I'd agree with. On the various sites I have pointed out this one myself - but the 'nano' businesses, many of whom, probably most of whom, are so small they don't have legal or tax advisers, look at what is to them an impossible task.  Their websites are set up so that a buyer clicks a button and then goes through Paypal to complete the financial side of the transaction after which the customer presses the button to complete the download.  It would be natural, in this scenario, for the information concerning customer location - two items, remember (and of course three if two are conflicting, don't forget that one) but Paypal won't provide it, not can't won't.  This is one of the reasons for the HMRC requirement being relaxed for the first 6 months but what HMRC don't point out is that that really only benefits people selling INTO the UK, although it is guidance which it is giving to people selling OUTSIDE the UK. 

Sorry Les, the closer and closer you look at this crazy system the worse it is, designed by people with no experience or knowledge of the business they are trying to tax based on a digital economy in 2008 that is worlds away from the digital economy as it really is and then comes the really scary bit.  It is the stated aim of the EU to extend MOSS (MINI One Stop Shop) to encompass ALL supplies of goods and services, all services, on a B2C basis from as early as 2016 at which point, we assume, the distance selling rules for goods, currently allowing a leeway of €35,000 or €100,000 depending on the country involved, will disappear.

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25th Jan 2015 17:46

Response - registration threshold

I do take the view that a VAT registration threshold should be low, perhaps £10,000. I would wish to keep those carrying out a hobby are kept out of VAT, but the problem is how to make a clear distinction between a hobby and a small or micro business. Those of us used to these issues are familiar with the Lord Fisher tests, which provides guidance on what constitutes a business.

 

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25th Jan 2015 17:52

Response - training

One of the repeated comments before Christmas was the lack of information available to small and micro businesses. HMRC's December announcements, with their change of mind, was evidence of the outcry against this lack of information.

However, there has been information available from a number of sources. I have delivered training and support to a number of Accountants and Bookkeepers, and to small businesses. But I do accept Paul's comment that this can be prohibitively expensive for small and micro businesses.

I do commend Link4Growth for helping in this respect, in making available support to its growing membership, and beyond.

It would doubtless help a lot of small and micro businesses if more training and support were delivered in a practical way. Any offers?

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25th Jan 2015 18:48

Training

Unfortunately, the simple fact is that until HMRC can give exact answers to a myriad of questions any training in this area will be of dubious value. For micro businesses in particular the UK requirements are bizzare. For example, if selling to a EU customer you must quote a VAT inclusive price - simple for those under VAT threshold up to now (as it would have been zero) but now they have to show a VAT inclusive price using the appropriate VAT rate (of which there are 81) in the 25 countries to which the rate is applicable. The only possible piece of information they will have from a new, browsing, customer is an IP address. At least 10% of IP addresses give rise to false information. So, if they had the wherewithal to actually quote a VAT inclusive price there's always a possibility that when it comes to checkout time they'll have to change the price charged on information they won't get until that point.

Imagine a seller from the UK trying to cope with this, selling something like a downloadable knitting pattern for, say, £2.00. Then imagine a US seller selling exactly the same thing, knowing full well that there's not a thing the EU authorities can do to stop them charging what they like. This immediately puts ALL such small businesses in ALL of Europe at a huge disadvantage. And that's only the tip of the iceberg.

Simple fact - HMRC don't know how to deal with this. They can't even answer basic questions.

Training will have to wait.

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25th Jan 2015 22:47

Lord Fisher

As as aside, much like BLP is old hat now, so is Lord Fisher - Yarborough, St Pauls, Longridge.

I've been thinking a lot about this obviously.  I think, Worldwide, we are quickly moving towards a situation, where consumers buying stuff, and that is all stuff, have to pay tax, with no exception. I think the issue is that, at the moment, the technology isn't there to handle this new way of taxing cross border stuff and the pace of change from a system that we have been used to for decades is considerable.  As is the failure of successive Governments to reduce the threshold, but over a long period to buffer the change.

When this moves to goods, it's going to be bloody[***]!

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25th Jan 2015 23:41

Goods in 2016?

Goods and all other services as well - but where does it stop?  Most vendors of goods, and services, are, or should be big enough to cope, but the UK has attempted, and succeeded, in the last 5 years to create a significant expansion in the self-employed many of whom are trading over an internet that is a world away from 2003, when VoES was created and 2006 to 2008 when the directive was drafted, but the bureaucrats cannot see it.  If A sells to B and A is "in business" a liability exists, if A is not in business would a liability exist under the new rules when there are no longer any limits?  Could a single sale be deemed to be 'in the course of a business' when there is no de minimis limit?

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26th Jan 2015 12:44

MOSS

This article makes no sense. From the replies, the 'misconceptions' seem to be misunderstandings on the part of the OP. Can we have some clarity on what MOSS means for small businesses?

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26th Jan 2015 12:45

I'm a firm believer in no threshold

Exemption yes, but VAT is not supposed to be a tax on business, so why a threshold?

This is a brilliant debate as it not only highlights problems between how small, medium and large companies are deemed to operate it highlights global chaos with regards taxing over multinational entities big or small.

Lots of food for the electioneerers.

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26th Jan 2015 12:57

Personal experience

We are a VAT registered company writing UK tax and accounts software. We sell software mainly to accountants. No problem.

As a side line we sell tax software to people doing their own tax returns so B2C. Most are in the UK, still no problem.

A few of our end user customers completing UK tax returns are non-resident and reside in EU countries, for example we sold our first copy of the year to someone in Finland this week ( £20+VAT = £24.80 ).  The sales are automated (they have to be) and so it falls under the e-service provisions. Tempted as we are to register in for VAT in Finland (+25 other countries), instead we have registered for MOSS. The issue is not MOSS, it is the underlying new VAT on e-services regime. 

Even with MOSS it is still a pain in the neck we have to charge appropriate rates and keep track of sales to all these countries. I don't see the suggestion of a fixed gross price and vary the net price really makes life any different.

Despite all the extra effort, we are still non-compliant in that we fail to get "two pieces of non-contradictory evidence" as we only get one address from paypal. Also we don't check for people who live in the UK but happen to be purchasing the software and completing their tax return this week whilst away skiing. We should I suppose check the ip address they are accessing from and that no vpn tunnel is in place.

Not only is it annoying, but I am not sure why Finland for example is getting the £4.80. I can see precious little will flow the other way.

 

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26th Jan 2015 13:10

whats next

TOMS

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26th Jan 2015 13:29

Or even

Stones

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By SXGuy
26th Jan 2015 21:04

There maybe ways to avoid

I may have got this wrong, but i am certain that i read, MOSS only applies to automated digital goods. A transaction which has human intervention, is not considered automated.

While i realise slowing down the process can lead to loss of sales, for a small online seller it may not make much difference.

Apply a pending status to transactions outside the UK, and physically check orders before marking them complete and sending the digital goods over, could avoid being considered automated.

There are plenty of free opensource e-commerce platforms which can easily account of different rates in each EU member state, Opencart being one of them. The only issue would be that the administrator would need to update rates manually, and the list of which goods apply would need to be checked manually also. But rates can be set to trigger depending on customer location.

 

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26th Jan 2015 21:31

MOSS is a mess

Well I write this from the perspective of someone who both runs some businesses and also develops and architects online service. My view? MOSS a mess and invented by people who do not understand the consequences. Sure, MOSS simplifies *reporting*, but that’s a bit like saying VAT is simple as there are only 9 numbers to write down 4 times per year! True, there are, but knowing *what* 9 numbers to report is a whole different scale of problem.

So why do I say it’s a mess? Well because a business must obtain and keep two pieces of non-conflicting evidence as proof of customer’s location and store that data for 10 years. Those two pieces of information can be taken from IP address, billing address or bank account address. IP address is notoriously unreliable and with the advent of IP version 6 is likely to get worse. AND… and, if you can’t get two pieces of non-conflicting…you should not permit the sale to complete. That’ll be great of business!

So picture it. Someone wants to buy an eBook or design or other good covered by the regulations. This might be a small purchase of a few pounds and they must then provide their home/billing address and/or bank account address and this will be verified and cross checked with their IP address and if at least two pieces don’t correspond their sale will be blocked?

Hang on, you’re wanting to download an eBook for £5 and you suddenly get into this home and bank address stuff? Has anyone stopped to think how many people will drop out at that point as the information being requested is out of proportion to their purchase? They’ll buy it from a US or non-EU site and avoid all this hassle.

Oh you say, well you only need to do this for people in other EU countries so as to determine their VAT rate. No your don’t! You have to do this to *every* customer as otherwise how do you know where they are and whether domestic VAT applies? You don’t…you must asked *everyone* and then keep your evidence of charging the correct VAT for 10 years. What’s more, this information constitutes personally identifiable information and so it is likely companies collecting and retaining this date (for 10 years) may be liable to register as a data controller with the ICO.

Oh, so then you think I’ll simply not supply to non-domestic customers – once I’ve ensured they are domestic with 2 out of 3 pieces of non-conflicting information of course! Only the EU Services Directive says that you must not discriminate against EU consumers with regard to their nationality or country of residence unless you have an ‘objective reason’ to do so….but then “it is not possible to say in general terms which reasons are objective”. Oh great!

Then we have the; Ah, but set one price that’s good for all, solution, only in the EU you face extremes of VAT in Hungary being 27% and in Luxembourg 3%. You’re going to build that into a one price suits all and remain competitive? And of course, *you still need the data to correctly report the MOSS figures* and so knowing the right rate, you might as well charge it, and not knowing the right rate, you can’t trade.

So I’m sorry, to say MOSS simplifies things is like saying VAT can only be really simply as it’s only 9 numbers 4 times per year, and good splash of those will be zeros, and so how can reporting 36 numbers *possibly* be complex. I’m sure there must be a few VAT experts on this forum who might be able to answer that adequately!

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26th Jan 2015 21:58

wrong person collecting

This is the problem, arising from our VAT system, which itself was set up as an origin system.

We are trying to ask the vendor to collect and pay the tax.  Instead it should be collected by Paypal and the like at the end of the transaction with people being allowed to advertise "£x plus tax at appropriate rate" prices.  Then only the payment collectors have to obtain data to charge the extra VAT.  VAT claims on related costs could be done as part of the self assessment process.

You heard it here first!!

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26th Jan 2015 22:07

Re the wrong person

Well I think you are right in that is will force a lot of businesses to sell through an online marketing place that will sort all this pain. So it's more an Amazon or eBay rather than PayPal, but otherwise close to the mark. The issue with a payment provider is ther're not the trader...but then you know all that :-) But the idea of EU businesses being able to setup and trader online? Gone. Instead they'll need to sell via 'agents' to handle the complexities of this stuff. I quite see *why* it's being done, but the conequence will be to stuffle trade

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27th Jan 2015 10:01

@iainhunneybell. All that you have described are consequences of the new EU rules on VAT on e-services to consumers. That is the culprit. That is what requires you to report VAT in 27 countries. MOSS is the sticky plaster over the wound. At least it simplifies it in that you can do this with one submission to the HMRC.

@sxguy. https://www.gov.uk/government/publications/revenue-and-customs-brief-46-2014-vat-rule-change-and-the-vat-mini-one-stop-shop-additional-guidance/revenue-and-customs-brief-46-2014-vat-rule-change-and-the-vat-mini-one-stop-shop-additional-guidance

"Where the sale of the digital content is essentially automatic, and the small amount of manual process involved does not change the nature of the supply from an e-service. "

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28th Jan 2015 08:10

Response - is a hobby a business?

There has been a lot of litigation over the definition of 'business' activity or, in euro-speak, 'economic activity.' A case could be made for a 'hobby' to be distinct from a 'business,' This could mean that the hobbyist would have no liability to register for VAT or MOSS, irrespective of turnover. This would assist those people for whom MOSS is too great a burden.

I wonder who will take up this challenge!

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28th Jan 2015 09:27

It's not MOSS, it the new EU rukes on VAT to consumers

@daveforbes, yes correct, the actual MOSS isn’t the issue, that is just the simplified reporting mechanism and so it’s correct, *the MOSS itself* is a simplification, but the new rules which are what are driving the need for the MOSS, are a mess and the consequences have not been thought through. So I was using the term ‘MOSS’ in an overarching way meaning ‘the implementation of the new rules’, but to be technically correct:

Yes, the MOSS is a simplification mechanism to report VAT across the communityThe new rules on the supply of electronic services to consumers and requirement to levy VAT at the rate local to the consumer is a major headache for which the consequences have not, IMHO, been understoodYes I understand the reason for the new rules as it prevents some businesses taking advantage of 2% VAT in LUX, but the solution simply means the likes of Amazon will continue while many smaller businesses will no longer be able to provide electronic services direct to consumers and be required to use some form of online marketplace (Amazon again?) to become the trader and handle the substantial issues associated with compliance with the new regulations

So apologies for misuse of the term ‘MOSS’. I didn’t mean the actual reporting mechanism, I meant the consequences of the data collection required to comply with the reporting.

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28th Jan 2015 09:58

True colours - Les

I feel insulted for all those people who earn an income less than £10K from what they would see as a business. They are now just doing a hobby.

If I am retired or work at home mum etc this is a very important income. Dont see that the hobby label does anything but insult here.

The point is that a very small business is going to struggle with these overheads or in some cases just stop before they start at the thought. 

Unfortunately the EU thinks this is levelling the playing field when non EU businesses are going to continue to ignore EU VAT like they have up to now. This is the case in the lower hobby end of business.

 

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28th Jan 2015 10:13

The hobby

scenario is just a possible way lower income people could opt out altogether. However if you intend to make a profit then you're stuck. You really don't think HMRC are going to let all Business under £10 or £15K re-classify as a hobby do you?

My advice is form a ltd. co and just carry on as usual. If it comes on top (which is highly unlikely for micro business) then fold the company and start again. Oh, I hear you shout THAT'S NOT KOSHER. No, but it's what some of the big boys do and get away with it.

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28th Jan 2015 22:26

The future

johnjenkins wrote:

scenario is just a possible way lower income people could opt out altogether. However if you intend to make a profit then you're stuck. You really don't think HMRC are going to let all Business under £10 or £15K re-classify as a hobby do you?

My advice is form a ltd. co and just carry on as usual. If it comes on top (which is highly unlikely for micro business) then fold the company and start again. Oh, I hear you shout THAT'S NOT KOSHER. No, but it's what some of the big boys do and get away with it.

I agree, it's a bit insulting to refer to any business, whatever the size, as a hobby.  I think what Les was getting at though was not size but intent.  This particular headache is going to be massive if these rukles are extended  as they are now to goods.  because the EU will have eBay in their sites, as a platform where they tell the seller they can deliver the goods when auction is over.  ergo, per EU, EBay is in the MOSS hot seat.  And that means they will have to try and determine whether, in each of the member states, someone selling stuff is in business or not, and self-declaration probably won't apply.  The UK says many sellers are private sellers, but who is to say what other countries think?

 

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28th Jan 2015 13:30

Complicated ?

You bet its complicated, how can the man in the street follow the new rules. 

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28th Jan 2015 15:30

Tempting.

I was becoming more and more tempted not to use the MOSS and to actually register for VAT in Finland for the £4.80 we now owe. 

I just went on www.vero.fi and I am very impressed with their website. Much of it is in English, but the e-services bit is not so I translated it using google translate. The bit I thought was interesting in the Finish interpretation was ....

6.1.5 The supply of services via the mobile network

When the telecommunications, broadcasting or electronic services sold to the consumer services over mobile networks, it is assumed that the consumer is established in a country, which is reflected in the services received the SIM card used the country code.

 

So if google translate and I have not misunderstood, if the person buying our UK tax software in Finland, living in Finland, downloads it via a mobile internet with a Swedish SIM card - the supply is in Sweden.

I can see  a demand for SIM cards from low vat countries !

 

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29th Jan 2015 09:37

VAT is not

supposed to be a tax on business, but of course these things always hit the small (micro) entity.

The answer really is simple. All business have to register for VAT however no VAT is charged to other business, you simply have both VAT numbers on the invoice. Other safeguards could be put into place if necessary. No, of course it won't be done because governments would lose out on revenue they really aren't entitled to.

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29th Jan 2015 22:55

Les, I'm sorry, but you entirely miss the point...

@leshoward, you say; “The legislation asks for two pieces of non-contradictory evidence. In the circumstance where the seller obtains such evidence, and has no obvious suspicion that such evidence is misleading then he has satisfied the legislation. He cannot be penalised for being tricked!  So, don't lose sleep over that one.”

I’m sorry, but you *so* do not understand the problem. You are looking at this *entirely* from an accounting point of view. So yes, from an accounting perspective, once you know the location of the customer, you apply the correct rate, account for it properly and MOSS gives you a convenient one-stop way to report it. What could be easier? This is probably what leads you to your conclusion…but I’m afraid this view is entirely disconnected from the real world.

So start with, establishing the location of the customer with two pieces of non-contradictory evidence over the web *is not easy*. @daveforbes nicely points to the idea of a connection via a Swedish SIM card. This is perfect (although a Luxembourg SIM would be better), and so perfectly makes the point about how this *is not* simple. I suspect people will offer Luxembourg or non-EU proxies which people can connect via to give them a non-EU IP address. The person applying to buy their software while on holiday…or business…is another perfect example. Even if you can accurately location an IP address…which you often can’t…IP address is only an *indication* of where the person is, not their home territory, unless they should pay Hungarian VAT on UK software if purchased while in Hungary…only of course their second piece of non-contradictory evidence would never match the Hungarian IP as they don’t live in Hungary, so that could never happen.

But these ‘mere implementation’ issues pale into insignificance when you look at the user experience. Utterly forget your accounting ideas, just stop and think from a consumer’s perspective.

You want to buy some electronic item and it’s available from two (or more) websites (or equivalent products are). One site says; Enter your card details, thank you Sir, download here. The other site says; Please give us your bank details. I’m sorry Sir, your bank details do not correspond with your IP address. Please now give us a second piece of personal information which we can use to obtain “two pieces of non-contradictory evidence” of your location. You will not be able to complete your purchase with us until we have been able to verify your location and applicable VAT rate”. And you, in these days of Internet fraud, will happily divulge all your personal banking or other information into this website just so they can obtain “two pieces of non-contradictory evidence”? Really? I’m sorry Les, but if you’d happily divulge all this kind of information to some website, I suspect you will be in a minority of one!

The fact is, in the real world, the customer will walk. They will not be willing to divulge that kind of information over a £5, £50 even £250 download/eService. They will look for someplace else to buy it which follows the; Enter your card details, thank you Sir, download here model, which the rest of the world follows. So to say MOSS is no issue, or more precisely, the change in VAT regulation and definition of where the sale is made in B2C sales, utterly misses the point as in actuality the changes sink online sales of eGoods in the EU. Customers will not be willing to provide the “non-contradictory evidence” that you believe is so simple. This is bad legislation as the implications have not been considered and I suspect a good many people who sell eDelivered services will be losing a good deal of sleep over this, although the actual MOSS reporting is the least of their concerns. They are worried about the decimation of their online business model.

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30th Jan 2015 06:46

Good points
Iain, that is a really good post. I am not an accountant but a VAT specialist. Suspect Les is the same. I think we always need to think less of accounting and more commercially - battle daily with accountants who don't understand what or why people do what they do.

Be interested in Les's further thoughts.

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30th Jan 2015 09:29

Why was place of supply originally that of the business?

I think too we need to consider why the place of supply of B2C services was previously considered to be at the business location. I strongly suspect the reason was because it was manageable and because determining the location of the customer and what local VAT rate to apply would be so problematic. I’m sure it was done for good reason, now all forgotten with this barmy piece of legislation. I know *why* they want to do it; I quite understand that, it's just no adequate consideration has been given to *how* it will be done and what the consequences will be, but I can see how it would have happened… The presumption would have been… probably the actual words used; The market will find a way. Been here and heard it all before.

It reminds me of the cookie law. You’ll have noticed everywhere you go on the web now, at least on EU sites, you get little pop-ups saying ‘We use cookies, please say okay’. We have this because of just one man in the EU parliament … one man … who had a bee in his bonnet and drove this legislation. Why? Because he quite incorrectly thought cookies are used for spying and so should be controlled. In fact cookies are an inherent way the web works to enable one request to be linked to the next and so for transactions to be performed. Yes this means they can be used to track, but this is just long term linking of one request to another and importantly, it’s not the only way to track people.

At the time a long study was done as to how things should be implemented; should the user’s browser’s cookie settings for instance be considered their consent? The one thing the study recommended was that users should NOT be subjected to pop-up windows which would act as an annoyance and drive people away from EU sites. And so what did they legislate? That users must be presented a pop-up…the one thing that was recommended should NOT be done. And guess what…

Tracking is still possible, simply by other mechanisms ont cover by the legislationThe legislation requires retention of the user’s cookie preference, and so (you’ll like this), as the primary ‘statement management’ mechanism of the web, it’s necessary for a site to set a cookie to remember that the user doesn’t want to accept cookies. You coldn't make it up!

And so instead of legislating against the unconsented tracking of users which was the issue, they legislated against one mechanism (cookies) which are also necessary for a lot of other purposes NOT linked to tracking/cross-selling. And now thousands of websites must be spending millions of pounds implementing pop-ups, and how many people do anything other than click okay/go away and carry on. A complete waste of time and effort AND it doesn’t actually address the issue of unconsented tracking of users!

This legislation seems similar. We have an issue with companies registering in low VAT territories and so reducing the level of VAT collected. Right, let’s legislate for something almost impossible to enforce, certainly for non-EU companies, cause our EU online businesses a huge amount of upheaval and cost and probably fail in the end to address the actual problem…just like the cookie law. So maybe the solution is just to move your website and online business to the US or some non-EU territory and continue to sell into the EU, ignore this VAT legislation and all this collection of customer personal information as it’s unenforceable outside the EU, and overall we reduce the tax collected. A brilliant piece of legislation…drive business out of the EU.

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30th Jan 2015 17:33

Les - if you enjoy a good read, read this...

Here is a link to a blog from a small trader attempting to register for the new MOSS scheme and a day by day account of the pitfalls encountered.  It also has a link to how you actually enrol for MOSS which a lot of people may find handy.  The deadline for registration using the UK MOSS scheme is 10th February if any other EU nation sales were made at any time this month, if this deadline is missed the taxpayer will have to register separately in any country in which sales were made or be subject to penalty from those countries for failing to register.  They would be able join the UK MOSS from 1 April.  It may also be possible that they could join the UK MOSS from 1 February provided that they apply by 10th March but there is no confirmation of this.

Now what worries me is the outcome of the last few days of the blog when they were able, it seems to register for MOSS.  HMRC found a work-round for early criticism of the new rules in allowing a person to register for VAT for digital services below the threshold and submit nil UK VAT returns as well as the new MOSS returns, completely contrary to the existing legislation I might add.  This particular business is, however, already registered for VAT, even though for some years their turnover was below the deregistration threshold, and so could have deregistered but didn't.  They asked if they could now use the appropriate description and stop accounting for VAT on their UK sales and they have been told that they can!  This strikes me as a very dangerous situation to be in - has anyone else got clients with similar problems?

I have duplicated this elsewhere so my apologies if it comes up twice...

https://www.lfs.net/vatmoss/

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31st Jan 2015 00:26

What's next?

Wait until the EU start legislating for social events in beer manufacturing plants!

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