Brace for Brexit 8: VAT MOSS complications
Jason Croke considers the VAT rules for services supplied to businesses and consumers from 1 January 2021, after the end of the transition period for leaving the EU.
The VAT treatment for services is relatively straight forward at the moment, with the default rules being driven by whether the customer is a business (B2B) or a consumer (B2C). But arrangements to access the VAT Mini One Stop Shop (MOSS) will be more complicated from 1 January 2021.
The place of supply of services is either where the customer is based (if B2B) or where the supplier is based (if B2C). The net effect is that a B2B supply of services is usually “outside the scope of VAT” and when supplied to a consumer it is usually subject to 20% (UK standard rate).
There are some exceptions to this general rule:
- Land related transactions will be where the land is located
- Use and enjoyment rules (electronic services/hired goods/telecoms)
- Where performed services are delivered (live events, entrance fees, etc)
- MOSS (Mini One Stop Shop) for sale of electronic services to consumers (B2C)
From 2021, the general rule remains unchanged and no change either to the place of supply of services rules relating to land, use and enjoyment and where performed services. The main difference will be with VAT MOSS.
Mini One Stop Shop (MOSS)
MOSS is an EU wide scheme that aims to capture a VAT element when an electronic or broadcasting service is purchased by a consumer in an EU country, from a supplier in a different country. For example, a consumer subscribing to a monthly subscription for a video streaming service falls into this category.
Where the conditions are met (a consumer buying an electronic service), then VAT is due in the EU member state the consumer is based, meaning a German consumer purchasing a video streaming subscription from a non-German supplier, will be charged German VAT. To avoid the supplier having to register for VAT in every EU member state, MOSS sees the supplier produce one VAT return that covers the sales made to each EU member state and means one return to cover all the suppliers EU’s liabilities.
There are two MOSS schemes; EU MOSS and a non-EU MOSS. The EU MOSS is for sellers based in the EU and selling to EU consumers.
The non-EU MOSS scheme is for sellers based outside of the EU selling to EU consumers. For example, a USA based supplier would register for non-EU MOSS in an EU member state of its choice in order for it to account for VAT on sales to EU consumers.
As MOSS is an EU simplification, the UK’s departure from the EU means that UK suppliers of digital services to consumers can no longer use the EU MOSS scheme. UK suppliers will complete their final UK MOSS return up to 31 December 2020, submit this and pay the VAT by 20 January 2021.
The UK supplier will have to register for the Non-EU MOSS scheme and deregister from the EU scheme. This will have to be done by 10 February 2021, ie 10 days after the first month's sales, if it makes sales in January 2021.
The UK is treated as part of the EU at present, but from 2021 it will not be. Therefore, a UK MOSS registration won’t be possible as only an EU member state can administrate a MOSS scheme, be it EU or non-EU MOSS.
From January 2021, a UK MOSS registration will have to be cancelled and a new, non-EU registration will need to be applied for in any of the remaining EU member states (ie not the UK). It may be easiest to register in Eire/Republic of Ireland, if only because the website is in English and the online and paper procedures are not dissimilar to the UK. Malta is also a good choice because the business language used is English.
Registering in another EU member state may involve language issues and some EU member states have indicated that non-EU businesses (including UK businesses from January 2021) may require a tax agent to be appointed. This would means engaging a local accountant to file your returns on your behalf and therefore additional costs.
The alternative to registering for VAT MOSS in one EU country is to register for VAT in each EU country where the business supplies broadcasting or electronic services.
It should be business as usual for the majority of service providers in a post Brexit landscape, but for those who are MOSS registered, they will need to deregister from UK scheme and register for MOSS in an EU member state in order to remain compliant.
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Jason has over 20 years’ experience working exclusively in indirect taxes (VAT, import duty, SDLT) with owner-managed businesses, corporates and not for profit sectors. He particularly enjoys challenging HMRC decisions, representing clients in tribunals or during inspections.
Experience includes land and property, partial exemption and...