EU VAT MOSS tweaked by HMRC

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Tax lecturer Paul Soper outlines the 1 January changes in detail below, after a recent HMRC 'clarification' on the VAT MOSS.

The decision made by the EU to refocus the place of supply rules from the place where the supplier is located to where the customer is located, has made it increasingly clear that the greatest problems will be encountered by the smallest businesses. 

Although these changes have been introduced over the course of the last seven years, and businesses outside the EU making supplies of e-services have had to apply a similar system since 2003 (VAT on Electronic Services (VoES)) it was only with Budget 2013 and Finance Act 2014 that the legal shape of the new system became apparent.

At the moment, supplies of telecommunications, broadcasting and e-services take place where the supplier is located but from 1 January 2015 if the supplier is located in the UK but the customer is located in another EU state then the supply will be 'outside the scope' of VAT in the UK, taking place where the customer is located. 

It will no longer count towards a registration threshold, nor will it be turnover for the purpose of the flat-rate scheme either as explained here by AccountingWEB leshoward.

VAT attributable to the supply would still be recoverable in the usual fashion, either through the domestic VAT return or what used to be an Eighth Schedule claim but is now made electronically to the country where the VAT was suffered.

Where the supply is a B2B supply the details will be shown on an EU Sales List but the recipient of the supply will account for VAT under the reverse charge mechanism. The problems really start when it is a B2C supply, a supply to a private consumer, where a completely new obligation is introduced and a fundamental choice needs to be made. 

If a B2C supply is made by a UK trader, in Germany for example after 1 January 2015, there will be an obligation to register for VAT in Germany, if a supply occurs in Greece then an obligation to register for Greek VAT. Unlike domestic supplies there is no registration threshold in any country of the EU unless the supplier has a presence there. 

The thought of registering in up to 27 countries as well as the UK, submitting over 100 returns per annum, each with different amounts of information being sought - the Italian VAT return seeks, it is claimed, 500 pieces of information - does not bear thinking about and so the EU has encouraged each member state to introduce a facility - the MOSS or Mini One Stop Shop - to simplify accounting for these amounts of VAT.

A trader, having first registered for VAT in their member state of identity, can then register to submit MOSS returns which will summarise the value of the various supplies made at the various different rates and the VAT due on these B2C supplies.  MOSS returns are due quarterly to 31 March, 30 June etc and to be submitted, together with payment in the domestic currency, sterling for the UK MOSS, by the 20th of the following month. 

It still means eight returns per annum, rather than four, but still much simpler than individual registrations. So far, so good.

A number of contributors, including myself, have flagged up concerns with the new system, and momentum has grown in a number of trader groups including Digital VAT 2015 on Facebook concerning the fact that a small trader whose turnover is below the registration threshold seemingly has to sacrifice their exempt status to be allowed to join the MOSS system or decide to register in each country individually.

On 10 December HMRC issued Business Brief 46 (2014) following on from meetings with groups of very small traders. This confirms a very unusual method of VAT registration, first hinted at by HMRC's Andrew Webb that will be permitted in anticipation of the rule change. 

A supplier of digital services with a turnover below the current UK limit will be permitted to register for VAT to be allocated a VAT number but will be permitted to treat their UK supplies as nil.

They are advised that they will need to file UK VAT returns but show the VAT due etc as nil. This will then permit them to add the facility to make a MOSS return on a quarterly basis - HMRC will ensure that their UK stagger group will also be March, June, etc, so that the nil return and the MOSS return can be submitted at the same time.

VAT attributable to these supplies continues to be recoverable but there is no facility to recover VAT through a MOSS return. But HMRC has confirmed in the business brief that recovery of the VAT attributable to the e-services supplies will be able to be recovered in the UK return even though the UK sales and liability are shown as nil.

Even allowing for the business brief clarifications, there are potential complications that still exist, for example, what happens if digital services are simply part of that person's business, a person supplying an e-service to download knitting patterns may also make and sell jumpers and knitwear and may also have a furnished holiday letting that they own? Can they register in this unusual way? 

What amendments will be necessary to UK law to permit this new method of registration - as yet no proposals have been made for further amendment in today's draft legislation for the Finance Bill 2015 - but without legal backing to what extent can a small trader rely on this clarification?

We also don't know to what extent small traders will comply. To date only 1,000 traders registered under the VoES scheme (although they will also need to register for the non-Union variant of MOSS from 1 January 2015) even though in America alone there must be many more who should have complied but didn't. 

Penalties will be levied by each country individually, for example for late filing, and investigations will take place by each country, even though HMRC will try to co-ordinate this process, but no-one knows how enthusiastic each country will be in pursuing defaulters.

South Africa has already introduced a variant of this scheme and other countries may well follow. The topic is under discussion in the US too. MOSS may be able to go some way to simplifying the system within the EU but can it also do so on an international basis? 

The EU also has plans that the MOSS will become an OSS in due course so that all supplies of both goods and services are within these rules. The current distance selling limits (€35,000 or €100,000 depending on each country) that prevent small traders having to register in each country for sales of goods to consumers will also disappear.

Whilst HMRC and the Treasury may claim that these rules have been developed over time and notified extensively, it is also clear that the very large number of very small traders have taken them by surprise and the solutions offered at present are, at best, a workround rather than a permanent solution. 

Compliance may not happen but that will create a large number of taxpayers vulnerable to a multi-country process of investigation and penalty.

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What about buying services and goods?

If a micro-business who registers in this "split" way for MOSS buys in goods and services from the wider EU:

 - For goods, will they have to fill in boxes 2 and 4 of their UK VAT return?  Presumably only if those goods relate to their cross-border non-UK supplies?

 - For services, will they have to operate the reverse charge mechanism?  Again presumably only if those services relate to their cross-border non-UK supplies?

Would be good to know.

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.

We have several clients to whom this applies and my advice has been "forget it"  

Eg client A who would owe around £200 a year, not ordinarily VAT registered. 

Client B is VAT reg, probably maximum would be £750 a year spread over 10+ countries. I advised to pay UK VAT on the sales and keep his mouth shut. 

The only one we are going to do it properly with takes in £50k+ a year from EU consumers. 

Whilst there might not be an official deminus limit, there is a very practical one on the basis it wont be worth anyones while to pursue these small sums, and worst case scerario I imagine all they will do it pay the due tax. Even a 100% penalty wont be worth the bother of doing this every quarter 'by the book'. 

Its wrong but its pragmatic. if faced with crazy rules it is the only sensible approach. 

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Also of interest

May be the Twitter VAT Q&A HMRC conducted around this, and the new guidance it has issued to small businesses ahead of January.

Brief 46 also stated that microbusinesses while still obliged to register for VAT in the UK to use MOSS, won't be asked to charge UK VAT on domestic sales.

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Why no de minimis?

What staggers me in this is how once again our genius politicians and government institutions (UK and EU level) create huge problems that could have been avoided by simply applying a sensible de minimis limit. They're always telling us how clever they are and how they have our best interests at heart but somehow reality usually shows the opposite.

Apart from the impact on the micro-traders, presumably tax authorities aren't going to be too happy administering (even automatically) thousands of payments of the odd few quid, euros, krone, etc popping up here and there.

I suspect Nelson's blind eye approach may be the best pragmatic solution from both sides.

 

Incidentally, I've seen one on-line discussion suggesting that HMRC's consultation on this involved contacting businesses they'd got listed as VAT registered.. or in other words, omitting exactly the ones who were going to get the biggest surprise.

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HMRC, the EU and VAT

No one else gave a monkey's about this but the UK government received complaints from UK businesses, probably fair enough when you are Tesco, that their competitiveness in selling books, DVDS, CDs and other tac was being undermined because large companies like Amazon had deliberately set up distribution companies in tax authorities with low rates of VAT.  Of course, the cost of mailing a CD to a UK customer from the likes of Guernsey or Luxembourg probably far outweighs the VAT saving so legally, for VAT purposes, the sale takes place in the overseas authority but the actual good is sitting in some giant minimum wage warehouse in, say, Wolverhampton.  As I said, nobody gave a monkey's about this apart from Tesco and that odious little creep in the Treasury who wanted to get his hands on all that lost VAT.  So HMRC trot off to ECOFIN and say they want the rules changed, this despite the fact that EU member states have not, will not and probably cannot harmonise their VAT rates (one of the consequences of harmonising would mean that the UK would lose its derogations on zero rating of food, newspapers and young children's clothing) but the brains in the Treasury insist that they want VAT charged in the destination (where the customer is).  It is an interesting aside to note the amount of traffic in goods that goes on over the boundary between Northern Ireland and Eire and the perhaps apocryphal story that de Gaulle was so concerned about VAT distortions that he told Monaco that unkess they introduced VAT he would cut off their water supply!)  Anyway, after hamfistedly insisting on this measure, the fools at the Treasury suddently discover that their stroke of genius is going to do enormous damage to the large number of SMEs who sell interesting stuff that we are particularly good at, mobile apps, nice bits of software, etc etc. So they ask for a de minimis limit and all the rest of the EU member states, now fed up to their teeth by all this UK twaddle, tell the Treasury to get stuffed.  Have your lousy tax measure and ruin your own economy.  I was once given some outstanding advice from a very wise Assistant Secretary when I worked in the VAT HQ of HM Customs and Excise: he said "John, you should always try to look through both ends of the telescope". 

 

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Deregistration?

From the Brief 46:

What if my UK turnover exceeds the VAT registration threshold?

It is important that you monitor your UK taxable turnover. If you exceed the VAT registration threshold (currently £81,000), you will need to start accounting for VAT on UK sales.

 

That's all well and good, but what if my client's UK taxable turnover drops back below £81,000 (or £79,000)? Can they simply stop charging UK VAT? Do they deregister and then re-register under the VAT MOSS "Digital Services (below UK VAT threshold)" business activity?

Half-baked tweaking?

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MOSS registration does not work

We have not been able to find advice on what to do in our situation.  We are already UK VAT registered but are now below the deregistration limit and will definitely remain so because our EU sales will no longer be considered UK.  We have tried to simply register for MOSS online, hoping we might then be able to select 'Supplies of Digital Services’ (below UK VAT threshold)' but we get an error message telling us to contact customer services.  Trying to contact HMRC about this is futile.  The telephone helpline don't know the answer and say someone will call us back but no-one does.  The online services helpdesk, when contacted via the web form, either copy and paste a random section of the website or tell us to contact the written help desk - who do not respond...

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NIce comments...

Thanks for the comments so far - when I first looked at these rules in detail earlier this year I was horrified and it seems my worst fears are being realised.  By the way, just to correct mccabes world - it is only e-services that are affected - companies as big as Amazon can't supply goods from EU countries at zero VAT because when their sales rise above €100,000 they have to register for VAT under the distance selling rules.  And of course the Channel Islands location doesn't wok any longer because Duty and VAT can no longer be avoided on import to the UK BUT - and it is a very big BUT - the EU themselves now prefer as a solution to ALL cross border trade that it occurs where the customer is located and Andrew Webb  HMRC confir,s that the intention is to move 'rapidly' to including sales of goods and all other services through the MOSS, which will then be the OSS - then ALL small businesses will be fried.  Spain has no registration threshold at all - and that is why MOSS has no de minimis limit and Portugal insists on a 10 year information retention which is why we must now comply.  Even UKIP presents no answer as the rules apply to NON EU businesses as well (they have had a similar system since 2003 - VoES and apparently 1,000 traders have registered!!!!)

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VAT MOSS

What a load of absolute twaddle!   Who are the idiots who think up such mindless rubbish?  It just shows how terribly nervous our government is about our economy. 

This kind of tax legislation is neither fair nor transparent, two of the cornerstones of good legislation. 

 

The only people to gain will be accountants.  Thank God I'm one...

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Making it up
I have spent far more time than I hoped in trying to help sort out the almighty mess that the VAT man has gotten themselves in. To be fair though, the main issue was in 2008 when we voted for this law with no deminimis. The treasury told me yesterday that they advocated a threshold but no other country supported and so we signed, although apparently they knew of the micro business issue (just didn't mention it for 6 years). The truth is that the Govt wants the 500m of revenue and had this in mind, not small business.

Even now, and even having small businesses sit down with ministers and senior officials, they just don't believe there are any major issues for micro and small businesses. VAT Returns, VAT apportionment, evidence collection, extra VAT costs, information commissioner, MOSS returns, possible audit from overseas inspectors, UK VAT inspectors. HMRC are, I am afraid, completely deluded.

As for the fudge set out this week. Don't know where to start...for one, establishing someone as a taxable person and then telling them to ignore S4, VAT Act 1994 is not legal, and HMRC are duty bound to obey the law as taxpayers. So many issues, some covered here and the whole thing is a reactionary fudge to a problem caused 6 years ago.

We should have had the balls 6 years ago to say, no, there must be a threshold. Unfortunately it seems no one in HMRC or the Treasury possesses any.

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Thanks Paul & others

I think, like most small practitioners, this has crept up behind me and, now that my bum has been bitten, and there's only a couple of weeks till XMOSS, I'll have to take notice.

Even if I have no clients (yet) to which it applies I have clients who supply goods & services to the EU and so, subject to retirement, I'll need to get to know, and watch them invent the law & practice, as the months go by.

Over the years I have not seen the point in moaning about this sort of stuff, that's life, plus, without changes to the law (especially naff ones), we'd be out of a job, but with the considered (rather than ranted) opinions given above this is one where I'd put my vote to any 38% campaign.  Would any experts above consider starting one?

 

 

 

 

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Big vs small

Thanks Paul, great comments as usual. Personally, I have few clients impacted either and I suppose I am at a level of experience etc where my fees are unlikely to be affordable.  But to me, that's the point.  This is a change that has the greatest impact on a level of the market that actually rarely needs an accountant, never mind a VAT specialist.  It has the potential to have some pretty bad knock on effects too, from social security costs to people being forced to pay money to Apple and Amazon just to survive. 

In my book, that ain't right and I think it is driven by the EU's ideaological fervour to try to "broaden the tax base" (as these kinds of people say) to such a degree, that tax will be due on every transaction at the same rate. That is most certainly their nirvana.  Everything the OECD, EU etc says at present is about increasing indirect taxes with the promise of greater social benefits.  Possibly there is nothing we can do as the UK has quite literally screwed the pooch years ago without telling anyone, but we are British, we have won wars and by god we'll go down fighting!

Cue "Land of Hope and Glory" as we set sail for Europe!!

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With all due rspect

I fully appreciate the comments which have been made above, but the "smelling the coffee" principle remains that the only reason why anybody would move from the current hybrid system on VAT in the EU to a new destination system, without harmonisation of the member states VAT rates, whether on goods or services, is because they are nuts, and as a result of a pile of conversation from a bunch of twats from the UK Treasury for the very reasons I gave you above.  For example, I have a business in the US, pretty big, and I use PWC to advise where I should locate to sell either goods or services?  Where do I go - Luxembourg.!! Why? Because the corporation tax rates are low.  On VAT on services who the hell else do you think are interested?  French?  Not the international language of business. Greece? Rumania, Poland, Czech Republic, Germany. OK, maybe the Irish.  Do you think for one second that the UK is not in the Commission offices every day duscussing, pensions, farming, banking regulations, insurance, VAT and the size of your Christmas Turkey?  Why do you put up with all this crap?  Maybe we will reach the stage (and I am not allowed to practise in France) when all your efforts from "working together" will be worthless because some dude from Scotland will be able to charge £100 for what you currently charge £500.  Interesting idea. I am totally in favour of grouping together and stopping all of this madness - across the whole area of taxation. Who is with me?

John

VATworld.co.uk

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Power to the people

mccabesworld wrote:

I fully appreciate the comments which have been made above, but the "smelling the coffee" principle remains that the only reason why anybody would move from the current hybrid system on VAT in the EU to a new destination system, without harmonisation of the member states VAT rates, whether on goods or services, is because they are nuts, and as a result of a pile of conversation from a bunch of twats from the UK Treasury for the very reasons I gave you above.  For example, I have a business in the US, pretty big, and I use PWC to advise where I should locate to sell either goods or services?  Where do I go - Luxembourg.!! Why? Because the corporation tax rates are low.  On VAT on services who the hell else do you think are interested?  French?  Not the international language of business. Greece? Rumania, Poland, Czech Republic, Germany. OK, maybe the Irish.  Do you think for one second that the UK is not in the Commission offices every day duscussing, pensions, farming, banking regulations, insurance, VAT and the size of your Christmas Turkey?  Why do you put up with all this crap?  Maybe we will reach the stage (and I am not allowed to practise in France) when all your efforts from "working together" will be worthless because some dude from Scotland will be able to charge £100 for what you currently charge £500.  Interesting idea. I am totally in favour of grouping together and stopping all of this madness - across the whole area of taxation. Who is with me?

John

VATworld.co.uk

Me John. I think the trouble us that the EU Commission view of harmonisation is a whole lot different to what we have in the UK. I recently blogged about the fact that we get a huge number of VAT breaks in the UK, from zero rates to the threshold. And the EU hates every one of them, because it fundamentally disagrees with non-taxation. I see MOSS as an attempt by the EU to soften up the EU citizens to a much greater tax burden and much more control from the EU not the member states. If this can be made to work, goods will be next, and then corporate taxation will follow (see Rita de la Ferias excellent article on this).

To me, my relatives fought wars to stop jumped up little zealots imposing their bizarre view of the world on the UK, but I am afraid, the UK is not the place it was and we are completely under the thumb of the EU or seem not prepared to sit on our hands and say, no, this needs 28 votes and you ain't getting mine until x occurs, x being what matters to the UK.

There are more talks planned with HMT soon, your experience may be invaluable. Want to PM me or the EU VAT action site
Wayne

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Many things no longer need 28 votes

VAT Doctor/ Wayne

I agree with the spirit of your comment. Unfortunately, now most EU decisions are by qualified majority voting, meaning that the UK can't rely on an abstention or "no" vote as a blocking tool - our size simply isn't great enough. In other words if it's 1 against 27 then the 27 will win.

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details needed

duncanphilpstate wrote:

VAT Doctor/ Wayne

I agree with the spirit of your comment. Unfortunately, now most EU decisions are by qualified majority voting, meaning that the UK can't rely on an abstention or "no" vote as a blocking tool - our size simply isn't great enough. In other words if it's 1 against 27 then the 27 will win.

Agreed.  But in important tax areas, I believe it's all 28.  That's why we are having changes in 2015, because I believe I am right that Luxembourg refused to sign until there was a good lead in, and compensation.  the latter is being achieved on a tapered basis, with Lux still getting some dough up to 2019.

Obviously there are our "standstill" rules on zero rates, and again, I think I am right in saying all 28 need to vote and all must agree.

On this specific issue, does anyone know whether it was a majority vote or all 28 voted?

Thanks

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MOSS and the VAT helpline

Also while I have your attention discussing this HMRC pile of garbage I listened to a conversation on Radio 4 today where an innocent who wanted to register for MOSS, OSS or TOSS rang that automated voice recognition system and when it said mention something he said " I want to register for MOSS" and it said "so you want to import a car".  As a taxpayer I am paying for all this rubbish so when they ask PWC, EY, KPMG, BDO etc with clients located in Luxembourg: "oh, by the way, do you have any clients who can help me with an answering service?", they didn't ask me or any of my clients who make money and pay taxes in this country.

It's nearly Christmas and I have to find out how the local Brighton food banks are doing.

Merry Christmas guys.

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Not just the EU either

Being inside or indeed outside the EU is no defence to this measure because even US entities are caught, they have been since 2003 under the VoES system and must now migrate to the Non-union MOSS scheme - of course only 1,000 registered in total for VoES and I suspect the total should have been much, much greater, and of course Non-union entities are seemingly powerless as their countries have no say in the governance of the EU at all.  South Africa apparently also introduced a similar measure earlier this year, I wonder how many souls are aware of that one!  In the meantime UK HMRC seem to be doing a job of alerting some UK traders of the new obligations but the other member states are largely silent and the small trader is left tearing their hairs out by the roots.  If you missed the hilarious saga of the attempt to register for VATMOSS played on Radio 4 as mentioned by mccabesworld here is the link to Marcus Tettmar's experience - https://www.youtube.com/watch?v=k1VMa1PUIQc - it is hilarious but so so sad...

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Zero rating

We, and the Irish are permitted zero-rating under derogation because we had these rules in place in 1978 when we first became subject to EC (as they then were) directives.  The same is true of VAT recovery blocking on cars and UK entertaining.  Until a few years ago (Denfoss) we also had blocking on overseas customer entertaining but as that was not in place in 1978 we had to change the rules and permit recovery.  As such I believe they are not subject to voting procedures but if they were I assume it would be all 28.

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10 Dec changes - authority

You'll all LOVE this.  I had a response from Andrew Webb today on what authority HMRC had to create a taxable person but then allow them to ignore UK VAT.

His response.

"HMRC has used the collection and management of VAT powers granted to the Commissioners for Revenue and Customs under paragraph 1 of Schedule 11 to the VAT Act 1994 to provide the VAT Mini-One Stop Shop (MOSS) registration procedure set out in Revenue & Customs Brief 46"

Even a cursory glance at Para 1 of Sch 11 confirms it merely says HMRC are responsible for the collection and management of VAT.  As opposed to the DVLA or someone.

Absolutely incredible isn't it?  There is NO WAY that this part of Sch 11 is authority for HMRC to ignore S3 and s4 of VAT 1994.

You couldn't write it could you?

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Staggering

Re the VAT Doctor above,  this is either another example of HMRC's duplicity or stupidity.  EU law defines what is a taxable person and responsibilities, not Whitehall.  I can see no evidence that the UK has applied for a derogation so that a business will be defined as a taxable person for MOSS and not for UK VAT.  I wonder how other member states dealt with this problem - anyone know a member of the EU VAT Committee? 

In case you think duplicity is a harsh word to use, consider this.  I recently represented a client at the VAT Tribunal on the issue of whether the teaching of yoga by an independent teacher fell within the scope of the exemption for education.  During the hearing I pointed out that HMRC had given such treatment to golf.  At this point, the judge asked them why?  HMRC's barrister was clearly shaken by this turn of events and asked for a recess to discuss the matter with his officials. 

Returning to the point, s3 VATA defines what is a taxable person and s4 states that taxable persons will be kept on a single register.  Paragraph 1 of Schedule 11 doesn't give them the power to define a new "class" of taxable person.  Schedules 1 to 3A are the important ones with regard to registration.  It looks like these poor little Mosses are going to have to deal with the Vogons after all... and pay £35 to another useless bunch to register under the Data Protection Act.

 

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Battle lines

mccabesworld wrote:

Re the VAT Doctor above,  this is either another example of HMRC's duplicity or stupidity.  EU law defines what is a taxable person and responsibilities, not Whitehall.  I can see no evidence that the UK has applied for a derogation so that a business will be defined as a taxable person for MOSS and not for UK VAT.  I wonder how other member states dealt with this problem - anyone know a member of the EU VAT Committee? 

In case you think duplicity is a harsh word to use, consider this.  I recently represented a client at the VAT Tribunal on the issue of whether the teaching of yoga by an independent teacher fell within the scope of the exemption for education.  During the hearing I pointed out that HMRC had given such treatment to golf.  At this point, the judge asked them why?  HMRC's barrister was clearly shaken by this turn of events and asked for a recess to discuss the matter with his officials. 

Returning to the point, s3 VATA defines what is a taxable person and s4 states that taxable persons will be kept on a single register.  Paragraph 1 of Schedule 11 doesn't give them the power to define a new "class" of taxable person.  Schedules 1 to 3A are the important ones with regard to registration.  It looks like these poor little Mosses are going to have to deal with the Vogons after all... and pay £35 to another useless bunch to register under the Data Protection Act.

 

Thanks for confirming I was not going mad.  HMRC are a disgrace aren't they?  I don't trust them an inch, OK some local officers are OK, but the higher you go, the more you see the duplicity.   I hope you fight the Yoga case again and there has been a pilates case since.  HMRC are  chipping away and being inconsistent. 

Thanks for the PM.  Will contact when have time!  Things are happening that I should hopefully be able to talk about soon, down to the pressure being applied to HMRC, Treasury and EU.

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europa website says (16 Dec 2014)

16/12/2014VAT 2015: new place of supply rules. Concerns raised by online micro-businesses in the UKThe new VATrules were designed primarily to benefit businesses and they follow extensiveconsultation with all EU member states, including the UK.We are aware of the concerns of online micro-businesses in the UK. Based on the new information from the HRMC, these businesses will now only have to pay VAT on sales made to other EU countries. For all domestic sales, their current VAT-free threshold remains in place. Some online businesses will need to adapt their websites to take account of the change, but we are hopeful that the administrative burden will remain low.The European Commission will evaluate the implementation of the new VAT rules in thecontext of a possible future extension of the One Stop Shop and would be open to proposing adaptations based on the feedback it will receive in this context"=========================    ====================   ============== Rather than saying "we are hopeful that the administrative burden will be low" it would be better to say that all micro busineses would be able to deduct as input tax the costs of compliance with the new rules (or be provided with funding), bearing in mind alleged intention was to "reduce burden" on businesses...OK not permitted by law, but that's what really should be put in place.

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Costs of compliance

As a non-expert on tax or VAT, it strikes me that it would helpful if the EU and national authorities were required to do something like those US rules requiring government forms to specify expected time and cost of completion. And then that there could be an exemption where the amount of tax being collected is lower than the cost of administration.

At least that might provide some evidence of common sense and thought among our taxing authorities - which at present seems to be sadly lacking.

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VAT MOSS advice for small & micro businesses in the UK

VAT MOSS is causing a lot of confusion and concern in the small and micro business community so we've tried to pull together some clear guidance on how to cope with it in our Sage One Accounts software on our blog at http://uk.sageone.com/2014/12/18/vat-moss/

Please read & share if you think it's helpful.

Paul Lancaster
Content & Social Media Specialist
Sage One UK & Ireland
http://uk.sageone.com/blog/

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I'm guessing but...

as you are UK VAT registered you won't be able to apply for MOSS as a below the threshold (non VAT registered business).  In other words, you have to register for the service as a VAT registered trader, then discuss separately how to deregister from UK VAT and, presumably, re-register for MOSS as a "below the threshold" business.

The alternative is to apply to deregister the current business, wait for that to go through then apply for MOSS.  As the first MOSS return isn't due in till April, this may be your best bet.

Hope I'm not barking up the wrong tree.

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The correct sequence is...

If you are currently VAT registered you can add MOSS to it and begin to use that functionality when appropriate.  However if you want to use MOSS alone you will first need to deregister for VAT and have that approved (take care that can include having to account for VAT in the final return.  Once you are deregistered you can then register for VAT again declaring UK sales of NIL and add MOSS facility to that registration.  Even though the first return is not due until April you must register for MOSS by the 10th day of the month following that in which your first EU supply is made. If you don't then you would be liable to registration in the country in which the supply occured and penalty for failing to have done so.  It really beggars belief that they could create such a complex and pitfall ridden system and then apply it to traders who are least well equipped to make sense of it!

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Complete mess
Only a deranged mind would have come up with this as a solution for this problem, or one whose back is up the wall with nowhere else to go. The solution is most definitely outwith the law though; heard yesterday that the CIOT had written to HMRC on this. But it's a help at least. The whole things a joke; discussions still continuing with HMRC over Xmas

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Read this - a geat analysis and update

From a Facebook page Digital Vat 2015 - check it out join it - it contains a very lucid description of the latest stage of play after contacts between that Facebook Group and HMRC last week - I'm sorry this is long but you need to consider it...

"This is an update on a UK meeting on December 19th, but it is still hugely relevant to those of you outside of the UK. The changes we need will have to happen at an EU-wide level, with each individual country asking Pierre Moscovici for legislative change. All of the questions, issues and actions discussed yesterday apply to each EU member state. The UK’s high VAT threshold makes us unpopular in the EU when we ask for thresholds, so our government urgently needs the support of other Member States, confirming that the issues we are raising are an EU-wide problem. All of the action points are EU-wide, even if yesterday’s discussions were in the UK. So PLEASE read through this update and then take inspired action. Each one of us is making a difference!

Caroline, Rosie and I were able to meet with senior representatives from HMRC and HM Treasury on your behalf on Friday (19th December). Mike Cunningham (Senior Policy Adviser HMT who attends the EU Fiscal Attaches meetings) was asked to meet with us by David Gauke MP, Treasury Secretary, (David wrote to us to confirm this) and Andrew Webb, HMRC, has the remit for the UK implementation of the VAT-MOSS regulations. So these are two of the key decision-makers and action-takers.

It was a positive and constructive meeting and we can assure you that HMRC and HM Treasury DO now understand the specific challenges that implementing the new EU VAT legislation is causing you, where that penny perhaps hadn’t quite dropped before.

We presented to them the technical challenges you are facing, as well as the administrative burdens, along with the initial analysis of the quantitative research survey that so many of you have completed (thank you!).

Please note: these are NOT minutes from the meeting. The points below summarise for affected businesses where we understand that the key issues are up to:

 

We can’t reasonably collect the data for proof of place of supply

Most of the smallest businesses cannot comply with the legislation because they can’t collect the required 3 pieces of location evidence (a third is needed if the first two contradict, so we have to have systems in place to collect 3).
 
Our survey shows that 90%+ of businesses trading below 100,000 Euros are using PayPal, usually the basic ‘Buy Now’ buttons, and the most they will be able to get is the customer’s self-declared account address. Andrew and Mike said they had been told at another meeting recently that a manual work-around would suffice, whereby you get the address and then email the customer to check it is correct, or you use a plugin to get them to declare their country and then manually compare this, after the purchase. We explained that the administrative burden of this would be unreasonable for the sale of, say, a £2.99 PDF, and that it would make the seller look unprofessional – let alone the problems that would be caused by the low numbers of consumers who would actually respond to such an email.

They DO now understand this.

They DO now understand that PayPal only gives most of us ONE piece of data.

HM Treasury explained that the 2 pieces of data are required for audit purposes – you cannot audit one piece of data. We discussed possible ways of changing the purchase process to collect the customer’s self-declared country, in addition to the address held by the payment processor. This would create two pieces of data – to process manually – but it was unclear whether they would both be ‘self-declared’.

UDPATE: Thank you Megan for confirming that self-declared information can only be used as ONE piece of evidence, no matter how often the customer self-declares it, specifically:

“For instance, when the customer gives a billing address and later confirms that same address through self-certification, that can only be taken to constitute a single item of evidence.” EU regulations, 9.5.5, page 71: EU Explanatory notes

Note: However, it has been stated by the EU Commission that the address given to the payment processor is NOT self-declared, therefore the PayPal address could count separately from a self-declared address. We are going to try to find this in writing for you. In the meantime, please see the updated HMRC guidance notes (issued on Friday 19th December) in the section Businesses using payment service providers, which confirms that a self-declared country and the payment-processor-supplied address will suffice.
 
ACTION: PayPal and other payment processors DO collect all of the information needed to fulfil the audit obligation. THEY could do the audit checks on our behalf and still issue just the 2 digit country code to us, but it would be officially verified – the bit we can’t do without the data. This then meets their consumer confidentiality obligations and we meet the proof of place of supply requirements, without creating a data storage nightmare. The EU could agree that this would be sufficient, for small businesses, as evidence of place of supply, for the purpose of audit, because it has been verified. Please ask your MEP to ask Pierre Moscovici’s team to lobby PayPal and other payment processors for this. This is an EU-wide problem and any solution needs to be applied across the Union.

ACTION: Please continue to lobby your MP and MEPs to ask for an immediate, temporary exception that would allow the smallest businesses to use the customer’s self-declared address as sufficient evidence for proof of place of supply, in the absence of reasonable methods to collect 2-3 pieces of data and check it during the transaction.

We don’t know what the price is until after the sale

Unlike big businesses, most of us are running ‘static’ sales pages where the same price is displayed to all visitors.
 
We don’t know where the customer is based until AFTER they have completed the purchase process. So we cannot display the correct VAT-inclusive price to them.
Instead, businesses are going to have to put their prices up by a ‘fudged’ average and hope that they get more customers from Luxembourg (3%) than Hungary (27%), taking the VAT-hit themselves. This is bad enough with digitally-delivered services, where there may be a reasonable margin. But the proposed 2016 implementation for physical goods, where margins are often tight, could cripple businesses.
 
Even if we could decode an IP address, live, it is easy for a tech-savvy customer to fake or hide their location.
 
Even if businesses could ask the customer for their address before they click the ‘buy now’, most of us don’t have the technical ability to code our web pages to then display the correct VAT rate out of the 75 that the EU uses.
 
Also, with systems like PayPal, they add the VAT at the checkout – AFTER the customer has clicked ‘buy now’ – so you are effectively selling on a VAT-excluded price and adding VAT after the purchase decision has been made. This breaches UK (and possibly other Member State) VAT rules, whereby the consumer has to be told the full VAT-inclusive price before they make the purchase decision, and it will also lead to a massive drop-off in sales completions because consumers will be rightly angry that the price goes up at the checkout and is more than they thought they would have to pay.
 
UPDATE: HMRC issued revised guidance notes on Friday that include information on how to handled ‘bundles’ for place of supply. Please see the section “Bundled or multiple supplies
 
ACTION: Do any of you know of a plugin that may be able to detect (reliably!) which country the customer is in and so display the correct VAT-inclusive price for them?
 
ACTION: Write to your MEPs, explaining this to them and pointing out that, with the current technology you have, the new EU VAT rules will cause you to breach EU consumer law. Ask them to help Pierre Moscovici’s team understand this.

We can’t always apply the correct VAT rate

Some payment processing solutions / plugins allow you to allocate a VAT rate per country – PayPal is one of these. BUT there is a problem:
 
PayPal (and most others) only allow one VAT rate per country. In some cases you might be selling, say, an e-book and a live online programme in the same transaction. The e-book (digitally-delivered therefore VAT is the rate in the buyer’s country) is liable for the new EU VAT rules, but the live online programme isn’t, and if you’re not registered for VAT in your home country, it is zero-rated, so there are two VAT rates in one transaction. Indeed, there are two different places of supply – and hence two different countries’ VAT rates – in one transaction.
 
Even without a live component, with 75 VAT rates EU-wide, there’s a high chance you’ll need two in one transaction at some point.
 
Your payment processor’s system almost definitely won’t be able to handle this. So you cannot apply the correct VAT rate during the transaction and it becomes a manual post-purchase administrative burden.
 
Charging VAT to a consumer on an item that is not liable for VAT is an offence.
 
We don’t get any of the data until after the transaction (unless you’re up all night manually processing your checkout sales!), so it creates a disproportionate administrative burden of manually checking each transaction and then going back to a customer if the data looks incorrect, potentially refunding incorrectly-charged VAT, then analysing and storing the data to complete your VAT-MOSS return.
 
ACTION If this applies to your business, PLEASE tell your MP and MEP. This is a ridiculous consequence of the legislation, the administration of which is well beyond most of the smallest businesses – which will be a barrier to trade.

You can’t please each EU Member State

Our case studies indicate that each EU Member State’s interpretation of what is a ‘digitally-delivered service’ is subtly – or sometimes majorly – different. Even if you comply with your own Member State’s interpretation, you could still be prosecuted by another Member State if the interpretations differ.

Update: HMRC has confirmed, as they hinted in our December 4th meeting, that any objection from a Member State would go through THEM, and NOT direct to you, and it would be HMRC’s decision on whether to pursue a complaint. If you are compliant with the UK interpretation, then you have shown willingness to comply. Please read HMRC’s statement, further down.

The assumptions the EU used to implement the legislation without considering the impact on the smallest businesses and sole traders were fundamentally flawed

Over the past six years, we have been led to understand that the smallest sector of businesses was not considered in the Member State Impact Assessments and we were not included in Member State consultative teams, based on two assumptions:

* That most businesses sell through 3rd party platforms – our survey data indicates that it’s only 40% in the UK and a tiny 5% non-UK EU

* That most are too small to trade with the EU outside of their Member State – our survey data indicates that over 95% DO – in fact, it’s hard not to, with digital products.

ACTION: You can include this fact in your letter to your MEPs – the data shows that we were ignored, with the best of intentions, but that the fundamental assumption on which that decision was based was wrong. Therefore the unintended consequences of this legislation were missed, which is why we need an immediate suspension of the implementation for these businesses, to allow the impact to be evaluated and for reasonable solutions to be found.

The ‘platforms’ can’t fix it for us

We discussed, again, that most of the platforms only heard about the new EU VAT rules in November 2014 and will be unable to comply by January 1st. Indeed, the changes they have to make are enormous and many are not EU-based, so the creating the leverage to get them to take action has been hard.

Action: Again for our legally-minded friends: can any of you find the point in Statute that confirms (EU-level, not HMRC briefing document) that the 3rd party platform is legally responsible if the VAT is not correctly processed – i.e. that the seller is not liable if the platform isn’t ready yet and could therefore simply continue trading and let the platform worry about it?
 
UPDATE: At the moment we cannot find any mention in the 94 page EU explanatory notes that says the 3rd party platform is liable.
 

HMRC and HMT DO now understand the technical and administrative challenges you are facing. Those pennies have now dropped. This is a massive achievement.

But that doesn’t change the challenges you are facing.

The data protection issues are huge

With major companies being hacked, the risks of ‘kitchen table’ businesses and micro businesses storing this level of customer data, for ten years, are huge.

Europe risks becoming a ‘digital desert’

We are hearing DAILY of e-publishers and other businesses located outside of the EU officially stating that they will no longer trade digitally with the EU, as a result of this legislation. Even Google is banning those in the EU from charging for the ‘help-out’ services.

We are hearing of companies already relocating to be outside of the EU, to avoid what they see as the crippling impractical consequences of this legislation.

For EU consumers, this means massively reduced choice and higher prices.

Question: Why were ‘Digital Services’ excluded from the existing EU Distance Selling Thresholds?

The EU has it within its power to pass emergency legislation that would allow the existing, agreed, long-standing EU Distance Selling Thresholds to be applied to the digital services under this legislation – from January 1st 2015.

This would allow tens of thousands of the smallest businesses to keep trading.

At the moment they face a stark choice. Most cannot possibly comply, for the reasons given above. They either trade illegally or close down. Far too many are already choosing to close – we receive emails every day, confirming this.

ACTION: Please write to your MEPs and implore them to get Pierre Moscovici to include digital services in the Distance Selling Thresholds, so that businesses don’t have to close.
Please ask them NOT to flood HMRC’s inbox. This is an EU decision.

You Now Have An Official Voice

As a result of the meeting and all of everyone’s efforts over the last weeks (thank you!), you will now have a voice, going forwards, on the relevant UK-based EU-wide consultation groups, which is brilliant.

We will be meeting at least monthly with HMRC and HMT, on your behalf, raising your concerns and standing up for your needs, over the coming implementation phase problems – as well as continuing to lobby hard and provide evidence to support the need for exemptions and thresholds.

This is a huge achievement, for a group of hundreds of thousands of businesses that was previously unrepresented, and it is in no small part due to the effort that each of you has put in with all of the awareness-raising activities, letter writing, petition signing and survey completing. It is also testament to the positive attitude of this campaign. Had it degenerated into a change-fearing-whinge-fest, then these agencies would not be agreeing to listen to us. Thank you!

None of the concessions so far would have been achieved without your efforts. We have it from senior sources in various organisations that the shifts that have already been created are at a near-unheard-of level, even if it might not feel that way for you, right now.
 

HMRC Official Statement

We have HMRC’s permission to publish the following statement on their behalf, as a result of the meeting. Please read it in the spirit with which it is intended, bearing in mind that they are required by Statute to implement the legislation.

“It is clear that the EU-wide VAT changes will go ahead on 1st January 2015. However, HMRC does recognise the difficulties that these changes will cause for many small businesses. They are listening.

Following discussions, HMRC assures us that during the first few months they will be applying a light touch on implementation, whilst actively supporting businesses who want to comply.

HMRC will be working with us (and you) to help small businesses to find workable solutions over the coming months:
– To enable the collection of the required two pieces of data for proof of place of supply, by clarifying and confirming types and sources of data; and
– The application of the correct EU VAT rate, to enable small businesses to meet tax accounting obligations, as well as consumer rights legislation.

They will also continue to work with other EU Member States to find solutions for the issues that have been raised.”

 

There is scope for urgent review and negotiation of thresholds as part of the OECD review in December / January / February, so your voice will be more important than ever then – and we are hearing clear support for change at an EU Commission level.
 
There is also scope under Juncker’s Digital Economy Plans over the next few months, to create the climate for change that is so urgently needed.

There is clear hope.

 

Update From An Unofficial Insider

We also met, separately, with a senior government insider who we are not able to name. He asked us to pass on the following – off-the-record:

There are high level ‘behind-closed-doors’ meetings happening about the new EU VAT rules and the challenges you are facing. You won’t see them being reported in the press until after the changes have been made. Just because progress is not visible to us on the outside, it doesn’t mean it isn’t happening. This is being seen as urgent, at the highest level.Don’t be put off by a ‘fob off’. We all know how it feels to be told, “There, there, dear, go and have a cup of tea and it will all be fine.” If you get a fob off letter, it’s actually a great sign – it means the person you wrote to has read your letter and taken action – and each time that happens, the door for the changes we need opens a chink wider. In the meantime, write back to them and explain why their fob off doesn’t fix anything.If you ask your MP to lobby someone on your behalf, they have to do it – or explain why they won’t. You may never hear the outcome of that lobbying, but things happen behind closed doors that create the possibility for change. This is essential work – please keep writing.Don’t expect any politician in any country to come out publicly criticising the legislation that their Member State is legally required to implement. It’s not how it works. The changes happen quietly, whilst the party line continues to be broadcast.It often looks – to the outside – as though nothing is happening, as though you are being fobbed off, until one day you wake up and the newspapers are reporting that change has happened.Each and every letter tips the balance in the favour of the changes that are needed. Please keep writing and visiting your representatives, EU-wide.A letter explaining specifically how the legislation disadvantages or negatively impacts your business makes an impact. It gives your representatives evidence with which to lobby on your behalf.What Can You Do?

We are all creating a climate for change, with each letter, each phone call, each email, each press article that is published. The next step is figuring out how you could to keep trading while we ALL keep the pressure on to get a threshold and other changes.

For now, please go through the suggested actions in this update and see how many you could take. We need people writing to the MP & MEPs on a weekly basis, if possible, updating them on the challenges you are facing due to the unintended consequences of this legislation – today and as we do our best to keep trading during the implementation phase.

Ask your MP in the UK to lobby Matt Hancock, David Gauke and Vince Cable to get them to lobby Pierre Moscovici and the other key decision-makers in the EU.

Persistence is the key to convincing the decision-makers that this is a genuine issue, rather than a change-resistant-pity-party.

And, urgently, please look at what you could reasonably do to allow yourself to keep trading, within the spirit of the HMRC statement.

We all need to do what we can to keep trading, to buy time for the changes we so desperately need.

 

Reminder of the campaign aims: An immediate suspension of the legislation, even if just for one year, for micro businesses and sole traders, while proper impact assessments are carried out and reasonable, workable solutions are found, including a sensible threshold below which the new EU VAT rules would not apply, worldwide.Immediate application of the already-agreed EU Distance Selling Thresholds to also cover ‘digitally-delivered services’And A Final Word…

HMRC and HM Treasury in the UK really DO understand how this is impacting you now. They are on your side, working really hard to help you keep trading, whilst we all find short- and medium-term solutions. Unfortunately, they are currently flooded with letters from MPs and MEPs asking about the situation, which is slowing down their efforts.

PLEASE ask your MP and MEP to write to and lobby the decision-makers in the EU, rather than hassling the teams in HMRC and HMT – that would be a real help.
 

That’s all for now – thank you for your patience with this long update. We hope you found it useful.

Please let us know how you’re going to keep trading – and if you have any great ideas to keep the pressure on the EU decision-makers – via the comments.

Thank you!
Clare & the EU VAT Action Team"

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Oh Clare....

If you want to read the Commission's stance on this then you can find it here..  http://ec.europa.eu/taxation_customs/taxation/vat/traders/e-commerce/article_1610_en.htm#a1

This paragraph is enlightening:

Why is the VAT exemption for small consignments (containing physical goods) not also applied to digital services so as to ensure equity?

There is no realistic way of applying such a threshold to electronic transactions. Traders providing electronic services have never, in fact, seriously pursued this issue.

In fact, the VAT exemption for small packages is giving rise to an increasing amount of market distortion with the increase in distance sales that has been facilitated by the Internet, and it is currently under review. The exemption is limited to goods the total value of which does not exceed €22. Member States also have the option of excluding from the exemption goods that are imported by mail.

Moreover, the exemption applies to the tax chargeable at import on physical goods and it is the purchaser who benefits from the threshold. The exemption, which runs counter to the fundamental principle of VAT as a broad-based tax on consumption, is provided for practical reasons to avoid the need to collect small amounts of tax from private consumers. This does not apply to digital services where the tax will be collected by suppliers.

The reason why traders (small) have never seriously pursued the issue is because HMRC and the Treasury didn't properly consult them. 

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Yes but...

Cyprus is one of the few countries which does apply a per product de minimis but this campaign is not about about a per product de minimis.  Both the EU and HMRC wildly underestimated the number of "Nano" businesses affected by this change - HMRC suggested 34,000 for the UK, it seems clear that 250,000 may be closer to the mark many of who are very, very small indeed.  If they all comply with the new rules the administrative cost for the taxation system in policing this vast number of small traders will exceed the amount of revenue that they generate and create costs for each trader which may well deter them from carrying on in business.  That is, of course, a complete and utter nonsense.  If these very small traders are excused from the obligation to report there will be a net benefit for the EU and it's citizens.

The distance selling rules for goods permit a de minimis, before the entity is obliged to register for VAT, of a minimum of €35,000 in each country, some countries, like the UK opting for €100,000  and yet even this relatively generous de minimis restrains distance selling, ie mail order within the EU according to the EU's own consumer organisations.

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people who do their own Vat returns

I am not sure if clients who do their own Vat returns are going to be able to follow all of that,

 

I am not sure I can follow all of it.

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Like a good read? Enjoy this instead of an e-book...

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 in another thread written by Les Howard so my apologies if it comes up twice...

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

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