Five common VAT MOSS misconceptions
A lot of material has appeared online about the Mini One Stop Shop (MOSS) in the past few weeks - much of it misguided, writes Les Howard.
New websites, blogs, and Facebook groups have sprung up, trying to cancel MOSS, defer its introduction, and help small businesses to mitigate its impact.
During December, HMRC actually relaxed some aspects of the new regime, apparently in response to the efforts of groups representing small businesses. But the actual content of the available material is decidedly patchy.
At the risk of attracting some criticism, I offer five misconceptions about MOSS that I have come across.
1. MOSS is complex
MOSS is a simplification measure. A strict application of the rules relating to Place of Supply and VAT registration would require many businesses to register for VAT in every EU Member State in which they make any supplies, irrespective of value. The administrative burden would be huge.
With effect from 1 January 2015, the Place of Supply for B2C supplies of ‘digital services’ is the place the customer is located.
The European Court ruled in 2010 that a VAT registration threshold could only be applied to a taxpayer within his/her own Member State.
Supplies made, or deemed to be made, outside the Member State cannot benefit from the ‘concession’ of a threshold.
This might be stated another way. For example, if I, as a UK taxpayer, trade in several member states, can it be right that I enjoy an effective VAT registration threshold of that total value of the thresholds of those Member States? I might make sales in the hundreds of thousands before charging VAT anywhere.
2. MOSS in the problem
The real problem is the effect of the UK’s excessive registration threshold. From memory, the real reason this has been escalated is the comparatively high administrative cost incurred by HMRC dealing with smaller taxpayers.
Successive Chancellors have suggested that even minor threshold increases allow thousands of SMEs to deregister. The effect is that many SMEs and micro-businesses have been duped into thinking that VAT-free trading is the norm.
When changes in legislation mean that those businesses actually do have to register, and administer VAT, it has come as a nasty surprise.
3. I don’t know what services MOSS applies to
One concern is that the definition of digital services is differently interpreted throughout the EU. This is necessarily true, and applies to all areas of VAT.
But the definitions of telecommunication, broadcasting, and electronic services are found in the Implementing Regulation 2006/112/EC, arts 6-7.
Rather than fret about the definitions applying in different member states, read the relevant article, then make a note as to why your services do or don’t fall within the articles.
It is also unlikely in the extreme that one member state will take action against a taxpayer in another member state making a digital supply of €9.99.
4. Small businesses will have to close
This has been one of the arguments presented to HMRC to allow some relaxation of the MOSS rules.
British businesses have a great reputation for innovative solutions. They are fast-moving and flexible, adapting to challenges. And MOSS is just another challenge.
I have dealt with a number of businesses, and helped to provide support as they introduced changes to their services, their contracts, and their operations, so as to mitigate the effects of MOSS. In one case, the change generated substantial new business, which would, in time, more than compensate for the one-off costs of the changes.
5. MOSS will cost me money
One of the key areas of relaxation allowed a UK business to register for MOSS, and ignore its UK digital sales. This has been a cost-saving concession for some businesses.
In contrast, where a UK based SME makes digital sales within the UK, the EU, and outside the EU, it may be worth accounting for output tax on UK sales.
The reason for this is that input tax is deductible in relation to supplies made to persons outside the EU, without the necessity to charge VAT. The statutory reference is VAT Act 1994, s26(2)(b), and this is referred to in Notice 700, para 10.2.
Every case will be different of course, but do your sums.
Les Howard is the founder of vatadvice.org and a regular AccountingWEB blogger. His mission here is to challenge some of the assumptions that have grown up around the hated VAT e-filing system for those making digital sales to the EU.
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Hi, I am a VAT Consultant, part of the team at vatadvice.org We are based in Cambridgeshire. We work largely with charities but also advise a range of commercial organisations.
I have over 30 years experience in VAT, and am currently also a part-time member of the Tax Tribunals.