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Brexit: Mixed messages for VAT MOSS users

HMRC guidance on gov.uk indicates that Brexit will immediately affect UK businesses using VAT MOSS from 1 February, in spite of the transitional period which runs until 31 December. However, HMRC press office confirmed on 29 January that this page is out of date.

29th Jan 2020
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Brexit and money
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The European Union (Withdrawal Agreement) Act was passed on 23 January 2020, which applies the legal foundation for the UK to leave the EU at 11pm on 31 January.

There should be few immediate changes, as the transition period will keep most UK laws aligned with those of the EU. However, the rights of UK traders to use the HMRC VAT MOSS portal and enjoy the VAT MOSS turnover exemption are in doubt.

HMRC guidance 

On 28 January, the advice on Gov.uk was that UK businesses will not be able to use UK’s VAT Mini One Stop Shop (VAT MOSS) for sales of digital services made after 31 January 2020. Industry experts are divided as to whether this advice is correct.

Richard Asquith, vice president of global indirect tax at Avalara, said the gov.uk page is out of date as it was written for a no-deal Brexit position that was due to happen on 31 October 2019. This may be true as the page says it was published on 18 September 2019 and by 29 Janaury 2020 it hadn’t been updated.

Recap

The VAT due on digital and broadcasting services sold to non-business customers (B2C) in other EU member states must be charged at the rate applicable where the customer belongs, and paid to the tax authority of that country. VAT MOSS is the online mechanism which allows businesses to report and pay that VAT in one relatively painless exercise once a quarter.

These rules have applied throughout the EU, and for suppliers selling into the EU, since 1 January 2015. VAT MOSS allows the EU countries to work together to collect cross-border VAT, and distribute the tax to the right country.

Tim Myerson, director of iVAT Limited, says “The UK is one of most developed ecommerce markets on the planet by volume. UK consumers are enthusiastic purchasers of digital services from other EU members states and from around the world. A large number of UK businesses also sell digital services into the EU and other countries.”

The trade statistics show that the UK benefits significantly from the VAT MOSS mechanism. The UK received around to €695m in 2018 under the VAT MOSS distribution, which was nearly twice the amount of VAT MOSS tax collected by HMRC to send to other EU member states in that year.

Exemption

The country-specific VAT turnover thresholds do not apply for international B2C digital services. This nil turnover registration threshold meant that micro-businesses were particularly affected by VAT MOSS; they had VAT reporting and payment obligations for VAT MOSS which don’t exist for domestic sales, which are governed by the normal VAT registration threshold.

However, following an extensive campaign by small businesses, an annual VAT MOSS turnover exemption of €10,000 was introduced from 1 January 2019. As long as the business does not breach this level of international B2C sales of digital services in the current year, or previous year, it doesn’t have to report or pay VAT under VAT MOSS.

For UK businesses the VAT MOSS threshold was set at £8,818 per calendar year.

Non-EU

This VAT MOSS de-minimis threshold only applies for businesses located in EU member states. It would therefore follow that once the UK is no longer an EU member state on 1 February 2020, the VAT MOSS threshold will fall away to nil.

This position is supported by the advice on gov.uk which tells businesses that if they make sales of digital services to EU consumers after Brexit they must either: 

  • register for VAT MOSS in any EU member state; or
  • register for VAT in each EU member state where they sell digital services to consumers

Tim Myerson commented that if this true it would impose a significant burden on the UK’s SME market. There is a danger that businesses will operate outside the law, and probably be unaware that they are doing so.

Non-Union scheme

The gov.uk advice correctly refers business to the non-Union VAT MOSS scheme that suppliers from outside of the EU must use.

The confusion is whether UK businesses must use the non-Union scheme from February 2020 (as stated on gov.uk), or from January 2021, as the transition period effectively keeps UK businesses in the EU VAT MOSS scheme until 31 December 2020.

** Update On 29 January 2020 HMRC press office provided the following statement "During the transition period time there will be no changes to our terms for trading with the EU or the rest of the world, unless the rules change for the whole of the EU. This means EU rules for customs, VAT and excise will continue to apply to the movement of goods." HMRC also confirmed the guidance on VAT MOSS and Brexit would be amended.

Replies (7)

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By MILLY1
29th Jan 2020 10:37

So we register for VAT MOSS in Ireland which reports in Euros. UK businesses record their sales in GBP. What rates of exchange do we use? Daily, average, period end?

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By johnt27
29th Jan 2020 11:17

Would be nice to have some clarity over this. We've already prepared clients for the potential changes and the likely need to register in Ireland, to minimise the language barrier. This just creates more red tape for SMEs than less, but that's been typical of government policy for the last 10 years+

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By Ruth E Corkin
29th Jan 2020 11:48

The guidance is out of date and was written for the no deal scenario. However, because the European Parliament has not ratified the Withdrawal Agreement, HMRC is loathe to update the guidance in case something slips up at the EU end and we inadvertently leave with no deal! The EP is due to vote on the Withdrawal Agreement tonight at 18.00 CET, so we should know tonight.
having said all of that, off the record, I have been told that HMRC is expecting the ratification and therefore the transitional period to apply.

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By ruzel
29th Jan 2020 13:37

Will this impact the info that needs to be provided on the invoice? E.g. additional VAT number?

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By Paul Soper
29th Jan 2020 15:39

Love the "clarification" - I quote... " This means EU rules for customs, VAT and excise will continue to apply to the movement of goods". The whole point surely is that MOSS only applies to e-services, not non e-services and certainly not goods. I assume they meant goods and services, because it is a bit late to introduce this if services and e-services are not included in the transition. Incidentally from 1 January 2021 not only will we have left transition (unless it is further extended!!!) but according to the EU the MOSS will become the OSS, One Stop Shop, as the e-services rules will then apply to all supplies of goods AND services within and into the EU. The current distance selling limits for goods (€35,000 or €100,000 depending on the country) will be replaced the current de minimis for e-services of €10,000 if you are a member of an EU state or, of course, NIL if you are not...

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By Jacket
19th Mar 2020 13:59

What was the outcome from this - was the guidance regarding 31 January 2020 incorrect and we should carry on with our MOSS returns as normal?

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Replying to Jacket:
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By Paul Soper
19th Mar 2020 15:08

For the moment - until 31 December 2020 - after that???

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