VAT Mini One Stop Shop Problem for very SMEs

VAT Mini One Stop Shop Problem for very SMEs

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I have just been reading the latest HMRC guidance on the new provisions concerning telecommunications, broadcasting and, of course, e-services.  As you may, or may not, be aware from 1 January 2015 the place of supply rules change for e-services to consumers - the place of supply rules at the moment place the supply where the business providing the services is located, and so for UK trader exposes them to UK VAT and of course registration.  Now I'm not too concerned about telecommunications and broadcasting because these are usually quite large suppliers of service but suppose a small business, with a turnover below the current UK VAT limit, provides these services.  From 1 January the place of supply will change to where the CUSTOMER is located.  This, of course, exposes our small trader to an obligation to account for VAT at each of the different rates within the EC and to register in each country in which a customer is located.  Where a trader does not have a location within a country there is NO registration threshold (we adopted this rule in 2012) and that would seem to suggest that even though the UK turnover remains below the UK registration threshold they would have to register and account for VAT on their international sales - any and all of them.  Now this can be simplified by registering to account for VAT through the Mini One Stop Shop idea, one return, 4 times a year, but quite detailed evidence which MUST be retained for 10 years(!) to identify these customers and their locations, and of course you also need to know how your supply is taxed according to local VAT rules which still differ enormously from country to country.  To make matters potentially worse you cannot recover VAT through the MOSS registration - that can only be recovered through your domestic VAT return.

The implications for very small suppliers seem horrendous and unless I have missed something (please tell me I have) will place an insurmountable barrier to very small businesses or expose them to considerable inconvenience - not to mention the fact that they can be investigated by ANY of the countries in which they are obliged to be registered.  Within the EU mail order supplies of goods are virtually non-existent because of the obligations on distance sellers to register, even though in that case there is a registration threshold of either 30,000 or (UK and Germany) 100,000 euros.  Those rules apply to supplies of goods of course, not supplies of services.

Can someone please reassure me that this ain't so...

Here is the guidance if you haven't seen it - http://www.hmrc.gov.uk/news/one-stop-shop.pdf

Replies (56)

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By shaun king
26th May 2014 19:37

Dead right

Your analysis of 2015 place of supply rules for E services and operation of MOSS is just about spot on. It has been known that these changes will commence in 2015 for a number of years and HMRC have been giving warnings for at least the last 12 months.

On paper it might seem horrendous but with the right systems modifications etc it shouldn't be to much of a problem.

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By 3569787
03rd May 2016 16:29

Red tape

.

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By shaun king
26th May 2014 22:49

its the EU

You can't blame the government this is an EU measure like Tour Operator Margin Scheme

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By Paul Soper
27th May 2014 11:39

Agreed

However it is the impact on the very small trader that seems to be the real worry - the larger telecommunications and broadcasting entities, and indeed the amazons and iTunes of the world can easily adjust their systems (What will Amazon do now?), the lack of a de minimis threshold could create real danger for someone with occasional e-supplies outside the UK.  I suppose that this could be looked at as the price we pay for nailing Amazon, although it would only apply to e-books and MP3's rather than goods sold...

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By Kyle_
09th Jun 2014 19:02

We're one of the businesses who would get hit by this. It will create a ridiculous amount of paperwork just to pay literally pennies to various EU governments.

They key question is do VAT thresholds apply? VAT thresholds apply to resident businesses and distance sellers. But a long standing question has been whether digital goods and services are distance selling or not.

However the updated distance selling regulations that come into force in June 2014 specifically extend rights to digital goods and services. If digital goods and services are protected under distance selling regulations then surely they must be distance selling?

Thus VAT thresholds must apply, right? Until you go over a country's threshold you can charge VAT at the seller's rate. This would also be in line with how Norway, Switzerland, etc work.

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By Paul Soper
09th Jun 2014 19:18

Problem - not distance selling

There is a fundamental difference between supplies of goods where thresholds apply - €30000 or €100000 euros and these e-services.  The rules require registration in the country where the purchaser is located but the vendor, you, will not have a presence in that country so no country (other than Norway I believe) has a registration threshold - and of course countries like Belgium never had a threshold anyway.  My reading (and I stress my reading) is that there are no thresholds.  However the rules only apply to broadcasting, telecommunications and e-services so if you can argue that you escape these definitions you'll be OK. - HMRC guidance states -

Examples of e-services include: video on demand, downloaded applications (or“apps”), music downloads, gaming, e-books, anti-virus software and online auctionsGood luck!

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By Kyle_
09th Jun 2014 20:05

HMRC's definition is misleading. 2008/8/EC says that to get the definitions you need to look at Annex II in 2006/112/EC. Annex II defines "electronically supplied services" as:

Website supply, web-hosting, distance maintenance of programmes and equipment;supply of software and updating thereof;supply of images, text and information and making available of databases;supply of music, films and games, including games of chance and gambling games, and of political, cultural, artistic, sporting, scientific and entertainment broadcasts and events;supply of distance teaching

It seems to me that this list covers practically everything. Can anyone actually think of any digital product you could sell online that wouldn't be included in this list?

We sell our own artwork which would be covered by #3. A lot of musicians and digital artists are probably now in big trouble, but at least for us it's only a small part of the overall business and blocking sales to the EU is an option for us.

To me, this new directive only makes sense if VAT thresholds apply. Coupled with the upcoming extension of distance selling regulations to digital products (June 13th 2014 - Consumer Contracts Regulations 2013) then VAT thresholds would make sense.

Without VAT thresholds then this situation is crazy, but with VAT thresholds and new consumer rights it's a decent pincer move against the App Store and similar services.

 

 

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By Kyle_
09th Jun 2014 20:53

Also something that would be useful for us is a clear definition of "digital goods" vs "digital services". In the real world it's pretty clear, but the EU directives use the digital terms almost interchangeably.

Our artwork would obviously be a "digital good" but the delivery method would fall under the service definition of "supply of images". So even if you have goods and not services, how do you deliver the goods without becoming a service?

E-books and (most) games/apps are goods not services, but even HMRC specifically calls them out as e-services. I can't find any space in the directives for a digital good to actually be delivered to a customer over the internet without turning into a service.

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By Kyle_
09th Jun 2014 22:41

I can't find any mention of thresholds so I'm starting to become convinced that they don't apply. Even more worryingly here's an example of taxable e-service from the EU's explanatory notes:

Quote:
In some instances, the service may be supplied directly by the owner of the electronic content to the ultimate consumer. That is for example the case where an individual purchases a song directly from an independent artist via his or her website.

This is a disaster for independent artists and musicians and I imagine there will be quite a ruckus as Jan 1st draws closer.

But why is HMRC being so misleading by only quoting examples that will effect Netflix, Spotify, Amazon, etc? Do they even realise that basically nothing is exempt from the new rules?

Unless there is a revision we will just block sales to non-UK EU customers as the overhead is not worth the hassle. Another great success for the common market.

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By User deleted
09th Jun 2014 23:10

The logical amendment ...

... for EC businesses should be, if total EC sales less than threshold for country in which established then no need to register in any, this would avoid catching unintended prey, such as unsigned musicians selling limited downloads etc.

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By Kyle_
11th Jun 2014 06:34

There's definitely no de minimis threshold.

Another big problem seems to be that marketplaces can put in their terms that they won't be liable for the VAT and pass the responsibility on to the artist, musician, or developer. A lot (most?) of marketplaces already do this, such as Google Play and Etsy. Apple are the odd ones out and pay the VAT themselves but will they continue to do so once the Luxembourg hole is closed?.

So this raises the question: how can HMRC state that they expect only 27k to 42k businesses to sign up when there will be thousands of artist, musicians, and developers expected to sign up from just Google Play, Bandcamp, Etsy, etc.?

Does HMRC not realise how many businesses are affected?

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By shaun king
11th Jun 2014 10:03

thresholds et al

Firstly, this only applies if you are registered for VAT in the UK and supply your services from the UK. So It will not trap many of the people the OP states (musicians etc) as it is unlikely they will exceed the registration limit in the UK.

As to registration limits in various EU Member States, most EU countries that if you undertake an economic activity you become registrable for VAT. It is only the UK that has such a high turnover limit so to set the turnover limit at anything over a penny or cent in another EU Member State is consistent with most countries VAT registration limits anyway.

The MOSS is something that simplifies the requirement to be registered in every Member State and with some forward planning, the OP has now got 6 months, these new changes can be incorporated within systems etc. Yes it is an additional burden on business but that is how the VAT system works, business undertakes the charging, collecting and remittance of the tax and HMRC just addresses perceived weaknesses in the collection procedures.

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By Kyle_
11th Jun 2014 11:15

Shaun can you link where it's stated that this only applies to VAT registered businesses because I can only find the opposite?

Take this quote from the MOSS implementation proposal:

Quote:
UK businesses currently unregistered in the UK who choose to register for MOSS here will also have to register for VAT in the UK and so their UK supplies will also become liable to VAT,

This indicates that it is possible for a business to be under UK thresholds and VAT unregistered but still need to collect VAT on e-services sold to customers elsewhere in the EU.

Since no independent artist is realistically going to register for VAT separately in each member state then MOSS is their only option, but having to register for MOSS requires a VAT registration which effectively eliminates even UK thresholds on e-services.

Surely this makes the situation even worse?

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By Kyle_
11th Jun 2014 11:26

Another quote from HMRC indicating that these changes also affect VAT unregistered businesses:

Quote:
It is estimated that after taking account of mitigating factors (MOSS and the change to the rules governing intermediaries) the place of supply rule changes will affect up to 34,000 businesses, of which about 5,000 are not currently registered for VAT in the UK.
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By shaun king
11th Jun 2014 12:56

your quote
Quote:

UK businesses currently unregistered in the UK who choose to register for MOSS here will also have to register for VAT in the UK and so their UK supplies will also become liable to VAT,

note the words "... who choose to register.." that makes it optional do you not think?

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Replying to legerman:
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By Kyle_
11th Jun 2014 13:20

UK businesses can

shaun king wrote:

note the words "... who choose to register.." that makes it optional do you not think?

UK businesses can "choose to register" for MOSS+VAT in the UK, or "choose to register" for separate VAT accounts in each EU country. Either way, collecting the VAT on e-services does not appear to be "optional".

You didn't even address the second quote which indicates that at least some VAT unregistered businesses will be required to register for MOSS (or alternatively open VAT accounts in other member states), which directly goes against your assertation that only VAT registered businesses will be affected by the upcoming changes.

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paddle steamer
By DJKL
11th Jun 2014 14:42

Have a client who this may impact

Really useful thread, thanks to all who have posted.

I have now done a little reading and to my eye it does appear that given the change in the place of supply rules that a business either registers in each member state in which its customers are located or signs up for MOSS.

Signing up for MOSS does appear to require a UK vat registration number.

I have a client who provides e services with a turnover of between 13, 000 and 21,000 per annum. To date, as the place of supply has been the UK ,there has been no requirement to register for UK vat. With the new rules, if it wishes to continue selling to non UK EU customers, the business will require to register, thus its UK sales will become vatable.

Accordingly the equation is, given limited UK input vat on purchases, are the EU sales, net of their implied vat, greater than 1/6th of UK sales? If yes, and excess covers additional admin costs etc, will need to register. If not, then blocking sales from EU customers who are non UK, may be the best option.

If  sales to the EU are a real pain re admin/date collection, and for this size of business it does look disproportionate, then maybe an non EU company is the way forward and sales to EU consumers are brokered through one of the online agencies who appear to offer this service to non EU business entities, the reporting of the sales becomes the agency's responsibility and it benefits from economies of scale. (the director of the company is not UK resident anymore so this may well be an option)

This type of legislation, with no lower threshold level, is stupid in the extreme. I have just e mailed the client to find out whether he readily has a split of turnover and will no doubt have to advise the options once I have all data. Whilst the company paid limited UK corporation tax on profits, if it now, from an admin point of view, is simpler to not trade using a UK/ EU company, then HMRC long term lose the corporation tax.

Roll on retirement when I don't have to deal with vast amounts of red tape

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By Paul Soper
11th Jun 2014 20:54

Horror Show

It is becoming quite clear that these new regulations have failed to consider the impact on micro businesses, artists etc in the UK - some years ago the European equivalent of Which, the Consumers Association, bemoaned the fact that there was very little mail order business within the EU - why? - well of course the single market rules.  I have contacted businesses in the States who refuse, point blank, to do business in the UK because it is part of the EU and now the brainless bureaucrats seem to have created a disaster scenario for small businesses in the UK.  I have always been a supporter of the EU - it has prevented a major European war in my lifetime and for that I am grateful, but this proposal will kill off so many small businesses under a welter of bureaucracy - Do we need a campaign?  It may already be too late but it strikes me that no-one has addressed the issue for small businesses...

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By Kyle_
12th Jun 2014 00:32

Well apparently our artists won't let us block non-UK EU customers as they believe it will encourage too much piracy.

We're VAT registered already (due to the distance selling side of the business) so it isn't likely to cost us much but it will increase paperwork by at least a factor of 10.

I asked our accounting software provider if they will be updating for MOSS but they're following HMRC's advice and stating that the changes will only affect big businesses like Netflix etc. so no need for them to update for their customer base. Is HMRC seriously misleading everyone or have we simply missed something that will exempt most small businesses?

Does anyone know of any accounting software that is claiming to be 2015 compliant without workarounds and manual adjustments? In most software you will probably have to add 27 new VAT rates and manually create the MOSS report.

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By Kyle_
12th Jun 2014 05:11

We found these recordings from the HMRC June 2nd 2014 London seminar: http://www.online-web-presentations.com/HMRC/ They confirm the conclusions in this thread.

 

Throughout the panel discussions they seem to believe that it will be easy to get foreign businesses to pay EU VAT. But in one of the panel discussions (can't remember which) they state that only 1000 foreign businesses ever signed up for VOES (non-EU MOSS precursor). So only 1000 businesses since 2003? Surely that is a failure and not a success?

 

Somewhere (again can't remember where) in Panel Discussion 1 the old French woman seems to indicate that the reason for thresholds on distance selling is because they can be detected at borders. Digital sales cannot be detected and thus no minimum threshold is the only enforceable solution. This actually makes sense.

 

From 28:30 in Panel Discussion Part 3 a woman asks about the UK VAT threshold and MOSS. It is confirmed that to use MOSS you must be VAT registered and the only alternative is to register separately in each member state which they think is a viable alternative for small businesses eager to grow.

They simply don't seem to realise that there are sole traders only making £20k or so with no intention of growing into a full fledged international business.

 

From 16:45 until the end in Panel Discussion 4 are all good questions. A man asks how they will enforce VAT collection on foreign businesses so that EU businesses are not disadvantaged. A bit later on someone shouts out asking if they're going to trawl the US for thousands of bedroom businesses to tax, which the man on the panel replies "are we even going to trawl the UK?"

Surely that is an admission that these new rules are unenforceable and will encourage small businesses to dodge taxes? And why would a small business that got away with not paying taxes start paying them when they become a medium business? Thresholds are the only sensible method to encourage long term tax compliance.

 

They also seem to believe the the definition of intermediaries in Article 9a will prevent most businesses from requiring to register for MOSS. But this ignores the fact that many businesses sell direct and don't want to give Apple or Amazon a big cut of their profits. Plus I am not even convinced that certain marketplaces like Etsy won't weed their way out responsibility. For example, Etsy currently qualifies for 4 out of 5 of the rebuttals to Article 9a so why wouldn't they aim for the 5th?

Prior to April 2013, Etsy would have qualified for 5 out of 5 of the rebuttals, because before then there was no automated delivery system and artists had to manually email their goods to customers.

So this then also comes back to a question in Panel Discussion 1 where the panel fails to define what "minimal human interaction" is. Is copying and pasting an email in under 2 seconds "minimal human interaction"? I can see this lack of clarity being very open to exploitation.

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By User deleted
12th Jun 2014 10:23

Sounds like ...

... a business opportunity, need some sort of intermediary business, so the overseas sales are made by an intermediary who get a commission from the traders for dealing the the bureaucracy.

I agree with Paul that the EU is a good thing in terms of keeping the peace, it is the meddling in member states' economies, policies and home affairs that is the problem!

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Replying to lionofludesch:
paddle steamer
By DJKL
13th Jun 2014 09:52

Intermediary

Old Greying Accountant wrote:

... a business opportunity, need some sort of intermediary business, so the overseas sales are made by an intermediary who get a commission from the traders for dealing the the bureaucracy.

I agree with Paul that the EU is a good thing in terms of keeping the peace, it is the meddling in member states' economies, policies and home affairs that is the problem!

 

There do appear to be some intermediaries already dealing with non EU business entities trading into the EU. I will, once my client responds, possibly investigate whether they will offer this service to EU business entities as an option.

If there is a UK based intermediary then it may be possible for my client to route his EU sales via it but keep his UK sales direct, however the way sales are made via his website I am not sure, on a practical level, if splitting how/by who they are processed is an option. However even if all sales are made to the intermediary and therefore his UK sales will cost him at least the equivalent of UK vat ( The intermediary, having to account for vat on all its sales, would in effect need a minimum 1/6th discount  to allow for this even though my client is not vat registered) from an admin view  it may be the route he has to take.

Analysis of his sales may be a possibility, there are only likely to be circa 400 or so a year. If his online sales portal has the capability to capture and sort the relevant required data under MOSS then completing the returns may be possible, however there appears no way not to suffer the cost of UK vat on his UK sales and if I need to do four vat returns and possibly the MOSS returns my fee to the business is going to more than double. (Existing fee is really low for company accounts prep and CT600 submission) 

I can see me doing a lot of work here for a very limited fee just investigating and assisting a review of the art of the possible.

 

 

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By Paul Soper
12th Jun 2014 23:22

Thanks to everyone who has contributed so far - it is interesting that a thread that started quietly has suddenly grown as more people begin to realise the problems that this may create for very small businesses.  Perhaps we do need some sort of campaign but I suspect it is too late.  Most small businesses will be blissfully unaware of the problem until they are suddenly investigated (by any one of the 28 members states even if they were to register for MOSS!) but even then the total tax, penalties and interest for the government will be small but a significant burden to a small business.

If anyone has some concrete examples please post them as I may contact my friends in Radio Wales...

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By Kyle_
13th Jun 2014 01:38

@Paul

We started a private Facebook group a couple of days ago to talk about the issues amongst digital artists. Currently there's only about 3 people in the group but we can go on an invite spree over the weekend and give you access to many real artists affected in our sector. However I don't know how many will actually accept the invites because who wants to talk about tax with their competitors?

I can PM you the group if you want or you can PM me your Facebook profile.

Even speaking about our own business, if this had been the VAT rules back in 2005 then we wouldn't be in business.

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By User deleted
13th Jun 2014 10:00

Surely if ...

... say total sales are £40k, then if sold to an intermediary for "export" then no need for UK registration?

Depending on the sales mix, I would think a price rise of say 5% would not be noticeable but the extra UK revenue would defray the admin costs of the overseas ones. Even 10% may be viable, depends what products we are talking about, but if they are downloading a track do people really care if it is 75p or 85p, I certainly don't, not if it is something I want!

 

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By Paul Soper
13th Jun 2014 12:01

Sale to intermediaries

Surely part of the problem here is the nature of the business - an intermediary can't assume the identity of the original vendor and I suspect that with many of these businesses the identity of the vendor is the reason why a customer is prepared to pay for the download - whilst some products may be able to be supplied through intermediaries many won't.  One problem with the larger existing intermediaries, iTunes, Spotify, Amazon etc is that they won't allow individual artists to register, it has to be through a 'label' ie a second intermediary, and if it is artwork etc further problems arise because of the lack of intermediaries and, where they exist, their cost.  A typical agency acting for a photographer or artist may want a fee of 50% of sales...

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By Kyle_
13th Jun 2014 14:21

I don't think a seller can really make a decision until the intermediaries publicly state how they intend to respond to the changes. There is no indication of when they will do this so a lot of sellers could be stuck in limbo until very late on.

 

The fees on these intermediaries range from >=3.5% (Etsy) to 15% (Bandcamp) to 30% (Google Play, but that's inclusive of transaction fees). All the marketplaces also have rules about what they will and won't allow you to sell, so for example someone with adult themed products might have no choice but to sell from their own site.

Currently a 99p track sold direct from an artist's website = 99p - 23p PayPal fee = 76p profit.

If after Jan 1st they have to move to an intermediary like Bandcamp then it will = 99p - 23p PayPal fee - 20p VAT - 15p Bandcamp fee = 41p.

To maintain their margins they will have to increase their track pricing from 99p to £1.55, a 57% price raise.

This doesn't even take into account the effect to brand building by no longer keeping customers on their own website. Having to use an intermediary just helps the big businesses further consolidate their position.

 

Also I don't believe that intermediaries even exist for every sector. I've never heard of an intermediary for web hosting or server purposes.

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By coolmanwithbeard
13th Jun 2014 13:31

I have a client..

I have a client who will be affected - and so on reading through it seems to me that he will either have to register in more than one country or go down the MOSS route - he is already VAT registered so that's OK.

 

If he wasn't the requirement to register abroad would mean he had to here unless he wanted to use MOSS. I wonder whether the requirement to register here will fade as it did for us agents a while ago.

 

As for accounting software - I have not tried it yet but I am happy that QuickBooks will be able to do this but will need some tweaking to get it to work but the mechanisms are all there in the standard VAT systems. Once I know what the reporting requirements are in more detail I will be adding this to my QB consultancy side I think. It won't talk to MOSS unless Intuit change things but I am happy I can get the monitoring, reporting and accounting to work.

 

Anyone on the flat rate scheme will have to change as input tax is done via the home state - if you use MOSS. I guess if you pay significant vat in another state it might help your decision. Is a mixed economy allowed (some moss some not?)

Of course for those of us who deal at the small end we have AE to come on stream too so I think I'll go and lie down maybe line my NEST with some MOSS

 

M

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By angus_fx
15th Jun 2014 20:47

A huge headache for SMEs

The lack of thresholds is plain stupid, and the talk of intermediaries disheartening.

What was supposed to be a big stick to make Amazon play nice has ended up giving them, along with Google, Apple and giants, even more power. Not HMRC's fault but the EU's - though I see no evidence that the UK's representatives there made any effort to stick up for e-SME interests.

If these measures are enforced as the law suggests they will be, it's essentially impossible for musicians, semi-pro software developers and others to sell annual volumes <£80k of digital goods direct over the net without getting in to trouble - they'll be forced to use one or more of the big portals. Even for those somewhat exceeding the VAT threshold the burden is a heavy one - anyone under £250k/year will be hit pretty hard.

What the EU mandarins fail to understand about e-SMEs is that they are 100% global from the get-go. Whereas conventional SMEs start out local or perhaps national, and expand overseas as they grow, e-SMEs (whether a specialist software company, or a band recording a particular genre of music, or an artist creating in a specific style) are global on day one - trading to all corners of the connected world, but perhaps in a very tiny niche. My first year's turnover wasn't even in to five figures, and yet I'd sold to customers in probably 20 countries in that time.

It's against the spirit of the Internet in general that such businesses should be forced to use a powerful, 30%-margin-scalping middleman for the sake of compliance with a poorly thought out tax measure. These middlemen are not just benign sellers, either - try finding out as an iTunes business who's actually bought your music or software product. You can't, Apple take ownership of the customer data and they aren't sharing. Google and Amazon aren't much better.

For this reason I would advise anyone thinking about starting such a business today to pack up their laptop and move to a jurisdiction beyond the reach of the Belgian tax authorities, until such time as they see sense regarding minimum thresholds.

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By coolmanwithbeard
15th Jun 2014 22:46

Thr problem with thresholds...

Angus

 

I can see your issue and the lack of any thresholds is disappointing - the question, of course, would be what threshold is sensible?

 

If each country set a threshold then oven a modest threshold could give an eu wide supplier a massive global threshold and reduce current tax take from existing registered businesses who are currently charging national VAT on their stuff. If there was a national threshold of any sales to anywhere who would police that?

 

I'm not in favour of the new rules per se but we have to be pragmatic and look for the best way we can to serve the clients this will affect and how we can help those you describe. If the onestop shop proposed works then we are looking at a system we can manage for small clients. I would hope we can do this as it's what client's look to their professional advisers for.

 

THe politics well sadly voting in MEPs who don't want the EU to work isn't actually going to help anyone and they won't watch your National Back in the EU as a pro EU MEP would (I'm not suggesting you voted for them - just pointing out the folly of sending in vandals to an art gallery - you might not like the art but do you want to see it ruined?)

 

M

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By Kyle_
15th Jun 2014 23:18

@coolmanwithbeard Applying the existing distance selling thresholds to e-services would be the most logical.

After Jan 1st, a UK business would be able to sell €99,999 worth of CDs to Germany without registering for VAT in Germany, while some teenager selling his band's music as MP3s will have to use MOSS from the very first sale.

Why does the EU think that it's more important to tax an electronic file than a chunk of wasteful plastic?

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By angus_fx
15th Jun 2014 23:21

Thresholds

There are already thresholds for distance selling of physical goods:

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

I see no reason why _digital goods_ like downloads and MP3s should not fall within those same thresholds. Well, it seems they likes to treat our sales as goods when it suits them (consumer protection) and sales when it doesn't (taxation). Suppliers currently charge national VAT because the place of supply is deemed to be the supplier's place of business ("you come to my web site in the UK to buy an e-widget"). Now that it's changing to be the customer's location, there's a clear analogy to the distance selling of physical goods - "you order an e-widget from my web site and I send it to you".

Most such businesses have a long tail of territories - a lot of turnover in a few territories, and a little in a lot more. So one option would be to require registration in all countries (or with MOSS) once you reach the threshold in any single one. I do wonder if this is partly a matter of cultural misunderstanding - we set sensible thresholds and expect people to play by the rules; nobody wants to see HMRC pursuing a lemonade stand - but how are we supposed to know what 28 different countries are going to behave towards a digital lemonade stamd?

I'm not a Kipper, not by a very long way indeed. But this is hardly the first piece of crashingly ignorant legislation Europe has enacted in the digital world and I'm certain it won't be the last. The cookie nag law and so-called "right to be forgotten" (aka right to prevent search engines from indexing public web data, instead of getting those hosting the offending data to actually take it down) being the most well known.

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By Paul Soper
16th Jun 2014 23:44

Sledgehammer time

It does seem that this measure, designed to catch the Amazon's of this world routing transactions through Luxembourg to take advantage of the various incentives they offer, including low VAT rates, will cause considerable difficulty for quite a number of small businesses in precisely the sort of innovative field that our government is supposed to encourage.

The really pernicious aspect which has now emerged is that it effectively denies SMEs the benefit of the normal VAT registration limit in the UK unless they are willing to register in every EU country in which clients present themselves, this is because the MOSS solution is only available if you are registered in the UK and these very small digital businesses aren't.  If they are registered there is clearly extra paperwork, although the availability of the MOSS helps but the MOSS can't be used to simplify other aspects of international trade within the EU.  If the business also supplies goods the MOSS would be useful to prevent having to register under the distance selling rules but no - that's not possible either.

It does seem clear that like a lot of EU inspired measures this has been devised by the EU (or implemented by the UK) without thought for these small businesses, and it affects business into the EU as much as inside.  If an American with a small business makes e-supplies they are also required to register under a slightly different MOSS type mechanism - who is going to tell them that this new measure is in place?

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By Kyle_
17th Jun 2014 04:33

At the end of the London seminar recordings they actually talk about extending MOSS to distance selling.

The way I interpreted it was that MOSS would replace having to register separately in each member state but retain distance selling thresholds. This would obviously be a good thing but why didn't they do this first to let businesses become familiar with and test the system?

The way others seem to have interpreted it is that they will extend MOSS and remove thresholds on distance selling so that all sales will be handled under one unified global system (i.e. this would be the full sized "One Stop Shop" and not the "Mini One Stop Shop"). I don't interpret what they said this way but it seems like a possibility.

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By angus_fx
17th Jun 2014 10:18

Extra-EU small businesses

It seems pretty clear that, for the time being, nobody is going to do anything about SMEs selling in to the EU from outside. The national tax authorities have no way of identifying that such a transaction has even taken place, no mechanism for auditing a company whose entire operation is outside the EU etc.; with digital goods there's obviously no physical customs barrier.

So we're now at a disadvantage to similarly sized competitors from the US, Russia etc. Great. The big firms will play ball, those selling £1M+ of goods in to the EU probably have enough of a presence here that it's in their interest to play by the rules, but most of our competitors are smaller than that. Never mind whether or not there's any incentive for them to play by the rules, they don't even know the rules exist. Heck, the majority of microbiz within the EU aren't aware of them, with just 6 months til the rules take effect & a major overhaul needed to peoples' web sites, accounting systems and shopping cart software.

It looks like in the medium term there'll be sales tax treaties as part of global trade talks, I expect that eventually we'll have to start collecting and accounting for US state sales tax as well as EU member state VAT, but that's a few years away at least.

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By Paul Soper
17th Jun 2014 10:51

Interesting

When the new system was first mooted last year, but before any significant details were established it seemed like a good solution to distance selling problems as well, particularly as some countries require a distance seller to appoint to tax representative locally who not only wants a substantial fee for acting as such but will usually demand a security deposit of 50% of a year's liability.  A Business established in the EU may not need to appoint a tax representative but not every country (Greece for example) has a procedure for registering non-residents, and if they are not resident within the EU will usually require such a representative.  That could also be a further problem for a small trader who does not want to use MOSS as it stands.

Suppose X supplies over the internet a very attractive version of (say) the Greek and Danish National Anthems which can be downloaded directly from his website and is the only download of his music that attracts international trade.  As his total UK turnover, including the £1,000 per annum of Denmark sales, and the same of Greek sales, is less than £81,000 he is not registered for VAT.  From 1 January onwards he must decide between registering in Denmark and Greece to account for £200 of Danish VAT (or increase his Danish Price by £250) as Denmark charges VAT at 25% on everything, and £189 of Greek VAT (or increase his Greek price by £230) as they charge VAT at 23%, though not on everything.  The Danes do have a procedure for registering non-Danish business in English and do provide published guidance, the Greeks don't (according to the EU), you can register but it will all be Greek.  Eight VAT returns will have to be provided each year to account for very little.

However choosing to use the MOSS will reduce the VAT returns by 50%, that's a good thing, enable registration in English, also a good thing, but will require X to register to register for UK VAT which he had chosen not to do, more returns, even if he makes an annual return, more complexity for what?

Had the distance selling and eservices rules been combined from the outset this would not have happened.

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By Ruddles
17th Jun 2014 11:48

Apps

Presumably these are covered by the new rules?

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By Kyle_
17th Jun 2014 12:18

Apps are nearly always sold through intermediaries so most app developers will be less affected as their marketplace will handle MOSS.

Apple is a reseller and covers the VAT on their app store which is why they take 30%. However expect Apple to raise their cut to 35% or more and for app prices go up.

Google Play only acts as an agent and passes the VAT responsibility to you (hence why they also give you the name & address etc. of anyone who buys your app). This will most likely not be a sustainable position after Jan 1st so expect to see Google's cut increase from 30% to 50% unless they budgeted in these changes from the very beginning in 2008.

I don't know how the Amazon app store or any others work, but do they really matter?

However, some Android developers do also sell through their websites. They would be hit much harder and will have to register for MOSS.

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By Ruddles
17th Jun 2014 12:19

Thanks, Kyle

I should have made myself clearer - I was indeed thinking of direct sales by Android developers.

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By angus_fx
17th Jun 2014 12:26

Apple

AFAIK, Apple adds on the VAT (currently 15% Luxembourg VAT) and advertises that price to the customer. The 30% cut is on their income net of tax. That's certainly how it was last time I looked anyway.

 

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By Paul Soper
17th Jun 2014 13:26

Taxamo services?

Does anyone have experience of this company which seems to be set up to act as an intermediary in this situation?  Maybe it is too early but clearly some sort of solution has to be found.  Here is a link - http://www.taxamo.com/#pricing - they seem to be offering a useful service but a flat fee per transaction could cost them a lot for many of the very small SME's who are going to be caught out by these changes.  As the company mentions on the site a further problem that we haven't considered yet in this thread is the requirement for the vendor to produce a tax invoice that complies with the evidently different rules that apply in each member state... it does get worse and worse...

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By EPF Solutions
05th Jul 2014 18:02

Effects on a business intending to sell only in the UK

Wearing my non accounting hat, I'm setting up a social enterprise that will supply goods and services that are only applicable in the UK. Part of the plan is to sell some ebooks and training online. I can aim to only sell to UK customers, but presumably I have to annoy them by asking pointless questions about where they live, and make sure the system blocks any sales to other EU countries. Otherwise I could end up having to register for VAT in other countries to pay a few pence tax. If the business becomes big enough to register for UK VAT, I could also end up wasting time and money registering for MOSS to account for tiny amounts occasionally. The system I will need to set up to handle this will be mind boggling, and a total waste of time and money. Or can I just add a checkbox that says "I live in the UK", and pass the buck onto the customer?

The online marketing training I'm doing at the moment is for businesses who sell the very items that will be caught by this. It seems to pretty much trash the whole business model, or cause big problems for tiny one person businesses that they won't be able to cope with, and may well get them into trouble. Or is that the plan?

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By The VAT Doctor
08th Jul 2014 11:57

Lobbying

I suspect it may be too late but I wondered what the small business organisations were doing on this to represent their members?  Is anyone here a member of the FSB?  It does seem that these new rules are the first wave in a wider EU plan to address the non-taxation of supplies to consumers.  It is probably not incorrect to say that the EU does not believe in non-taxation.

Phase 1 is the BTE rules that, in effect, provide no opt out on turnover grounds.  You  make one sale to a private individual of a BTE supply and you have to pay the tax, through MOSS or by registering.

Phase 2 is an extension of the BTE rules to ALL sales of services to consumers

Phase 3 is an extension to cover ALL supplies to consumers

There is no reason the EU won't move from Phase 1 to 3.

In my view, Phase 3 will be with us within 5 years, and this will be a major headache for all!  What would I do now?  I would set up a simple company to make BTE sales to consumers and registered that under MOSS.  It would get a 100% VAT deduction and would ringfence the UK sales from VAT.

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Replying to Accountant A:
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By Kyle_
09th Jul 2014 05:34

I think the average FSB member

The VAT Doctor wrote:

I suspect it may be too late but I wondered what the small business organisations were doing on this to represent their members?  Is anyone here a member of the FSB?  It does seem that these new rules are the first wave in a wider EU plan to address the non-taxation of supplies to consumers.  It is probably not incorrect to say that the EU does not believe in non-taxation.

Phase 1 is the BTE rules that, in effect, provide no opt out on turnover grounds.  You  make one sale to a private individual of a BTE supply and you have to pay the tax, through MOSS or by registering.

Phase 2 is an extension of the BTE rules to ALL sales of services to consumers

Phase 3 is an extension to cover ALL supplies to consumers

There is no reason the EU won't move from Phase 1 to 3.

In my view, Phase 3 will be with us within 5 years, and this will be a major headache for all!  What would I do now?  I would set up a simple company to make BTE sales to consumers and registered that under MOSS.  It would get a 100% VAT deduction and would ringfence the UK sales from VAT.

I think the average FSB member will be brick and mortar (FSB give you access to discounted insurance or something) and there's really no reason for an online business to join unless they're buying stalls at trade shows.

I think the extension of these new rules to goods would initially be welcomed by many small online sellers (until they realise the paperwork). A current major problem on Amazon/Ebay is American and Chinese sellers avoiding duty and VAT and dumping on the market at near wholesale prices. Extending MOSS to all physical goods and removing low value border exemptions would help small sellers a lot.

But this relies on 1) the micro/small businesses being able to do the paperwork, and 2) HMRC/EU actually equally enforcing the rules internationally which they've basically already stated is beyond their abilities.

 

In other news, they seem to have removed the invoicing requirements: http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/ho...

I hope they issue further advice on the evidence required to determine a customer's location as the current rules seem to have been made by the same idiots who brought us the Cookie Directive and the Right to be Forgotten. As far as I can tell there is still no advice about what action to take if evidence is contradictory.

 

Call me an idiot, but if the internet wreaks such havoc on consumption taxes then maybe the best idea is to just get rid of them and increase income/corporation taxes?

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By The VAT Doctor
09th Jul 2014 06:53

hang on

But then I would have to retain Kyle :-)  Why get rid of VAT when it's such an amazing earner (for the Government)!

We have mentioned this problem too, but, as I said, the fundamental issue the EU have found a way to tax all supplies to consumers for certain supplies, but this is clearly stated to be a test for a wider application to bricks and mortar as you say.  So I would hope the FSB can see where this is going.

http://www.larking-gowen.co.uk/blog/2015-vat-changes-in-the-digital-sect...

 

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By angus_fx
09th Jul 2014 12:45

Single market

If what they want is a single market, it'd make more sense to have a single EU-wide VAT rate payable to Brussels, with a single turnover exemption threshold. Indeed the whole point of a single market is to make things more economically efficient, not less. However, in the current political climate that looks distinctly unlikely.

When these rules come in to effect, it will be easier and cheaper for an American firm (who can simply choose to ignore the rules) to supply the 28 member states than a British one. It's nice to think that HMRC will chase down such foreign firms on our behalf, but if the supplier is outside the EU they have no way of determining a transaction has even taken place.

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Replying to Mickey Jupp:
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By Kyle_
09th Jul 2014 16:10

The thing is, this doesn't actually seem to be an EU only issue

angus_fx wrote:

If what they want is a single market, it'd make more sense to have a single EU-wide VAT rate payable to Brussels, with a single turnover exemption threshold. Indeed the whole point of a single market is to make things more economically efficient, not less. However, in the current political climate that looks distinctly unlikely.

When these rules come in to effect, it will be easier and cheaper for an American firm (who can simply choose to ignore the rules) to supply the 28 member states than a British one. It's nice to think that HMRC will chase down such foreign firms on our behalf, but if the supplier is outside the EU they have no way of determining a transaction has even taken place.

The thing is, this doesn't actually seem to be an EU only issue. The EU wrote the directives and will be the first large marketplace to implement them but the long term goal seems to be to implement similar laws in all G20 and OECD countries as laid out in the OECD Base Erosion and Profit Shifting Action Plan.

So once the laws are fully implemented we will be expected to collect and pay various consumption taxes to over a hundred different states. For tangible goods this could potentially be a good thing as it will help cut down dumping on international markets.

But how many billions will be spent on the infrastructure for this? How many man hours? Will the US really allow their citizens to go to jail for unpaid EU taxes and vice versa?

How complicated does it have to get before they give up on consumption taxes?

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By angus_fx
10th Jul 2014 15:17

In the long term, you're right

That appears to be the way the wind's blowing - and yet I can't see (for example) US Republicans agreeing to a treaty allowing EU authorities to pursue US private citizens.

I wonder if, instead, small vendors will be effectively forced to use middlemen (Amazon, Google, Apple, perhaps eBay & PayPal) who in turn can be forced to implement appropriate systems to account for consumption tax worldwide in a robust fashion.

 

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By User deleted
11th Jul 2014 18:17

So, let me get this right ...

... The Tuneless Charlies sell a digital download of their EP to Kurt in Hannover for £2.38 and have to pay German VAT via MOSS, or by registering in Germany of £0.38.

Why not just have a stand EU limit of £1000 per country for registration, even £100, it is going to cost more to collect than they actually receive!

So, the question is, how rigourously will this be policed, will any body every be "done" for not registering for such petty sums?

Probably, much more efficient to fine them £250 for non-compliance (times X thousand of similars) than to address Amazon and their ilk!

 

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By WieserSoftwareLtd
04th Sep 2014 17:22

Registering outside the EU won't help, and worse
Sorry I'm a bit late to the party here, but only just realizing what a disaster this is.
Actually, NON EU sellers off software have had to deal with this since 2003 I think. This is supposedly to level the playing field.

We sell through PayPal, which at least lets us know what country the customer is registered in.

But that's not enough: We need to know where the customer is:
See http://www.hmrc.gov.uk/posmoss/

When providing digital services in the circumstances below, you can presume that the location of the consumer, and therefore the place of taxation, is as follows:
• if the service is provided through a telephone box, a telephone kiosk, a wi-fi hot spot, an internet café, a restaurant or a hotel lobby, the consumer location will be the place where the services are provided
• if the service is supplied on board transport travelling between different countries in the EU (for example, by boat or train), the consumer location will be the place of departure for the journey
• if the service is supplied through an individual consumer’s telephone landline, the consumer location will be the place where the landline is located
• if the service is supplied through a mobile phone, the consumer location will be the country code of the SIM card
• if a broadcasting service is supplied through a decoder, the consumer location will be the postal address where the decoder is sent or installed

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