VAT: Loss of MOSS was costly mistake
Krystal Hosting Ltd failed to submit its MOSS returns and was deregistered from the scheme. The cost of submitting individual EU country VAT returns would have amounted to twice the VAT it owed.
As the world becomes ever more digital, it may be easy for businesses to not realise their digital VAT obligations and the case of Krystal Hosting Ltd (TC07923) highlights the need to comply with those rules.
Mini One Stop Shop (MOSS)
This is an EU scheme that applies to any business which sells digitally supplied services to EU consumers (B2C).
A digitally supplied service is one that is mainly supplied electronically and with very little human processing by the supplier. Examples include subscriptions to video or music streaming services, subscriptions for online software licenses, purchases of Apps and similar.
The purpose of VAT MOSS is to tax the consumer in their own country. Without MOSS, a digital service could be taxed in the supplier’s location. This would result in more revenue for the lucky EU member state where the supplier is located, but less lucky for the other EU member states who were missing out on that lovely VAT revenue.
The concept of MOSS is the supplier can either register for VAT in every EU member state they sell to or they can register for MOSS, and submit a single VAT return that covers all the EU member states.
The seller collects the VAT from the customer at the purchase stage. The MOSS return is filed to the jurisdiction the business has registered MOSS in. The tax authority for the country of the MOSS registration then distributes the seller’s VAT to the respective EU member states.
Krystal Hosting Ltd
The taxpayer had registered for MOSS but failed to file its first three MOSS returns, so HMRC cancelled the MOSS registration after sending several electronic reminders.
Once HMRC cancel a MOSS registration, there is a two year wait period before MOSS registration is permitted again. In that ensuing period, in the absence of MOSS, the UK seller must account for VAT in each EU member state individually, this means registering for VAT in multiple EU member states, which is both costly and administratively time consuming.
The taxpayer waited two years and re-joined MOSS. This case concerned its appeal against the decision to cancel its original MOSS registration, as it owed approximately £25,000 of VAT to various EU member states. Registering for VAT in those member states would cost upwards of £50,000.
Who knew what?
The taxpayer’s main argument was that HMRC had not provided sufficient warnings and reminders before cancelling the MOSS registration. The FTT heard that the reminders are sent automatically, via electronic message within the government gateway/HMRC portal. The taxpayer needed to log into their portal to view these messages.
The taxpayer argued that, having assigned an agent to look after their VAT, they had no need to log into the portal. However, the tax agent did not have access to these messages as they had their own agent log-in which did not grant the agent access to messages between HMRC and taxpayer. Finally, they argued that HMRC should write to taxpayers on matters of importance such as deregistering from MOSS.
HMRC and tribunal response
HMRC took the view that the implementing regulation only required for HMRC to issue a message, not to prove it had been read. HMRC could prove that the messages had been delivered and as an email is also sent to the taxpayer to remind them there is a message on the online portal, HMRC had done all it needed to do.
In addition, HMRC asserted that the taxpayer cannot pass responsibility to an agent, the taxpayer alone is responsible for ensuring they comply with the VAT regulations.
The tribunal concluded that HMRC were correct to cancel the MOSS registration as three returns had failed to be submitted. The FTT was satisfied that HMRC acted within its legal framework for notification to the taxpayer.
The tribunal also noted that it was unusual that the agent could not access messages but that did not change matters, the taxpayer must have been expecting to file three MOSS returns and if the agent had failed to prepare them, the taxpayer was responsible for prompting the agent.
The first point is that taxpayers have a responsibility to comply with the legislation and cannot abdicate responsibility by blaming the agent.
The second point is that what is seemingly an unfortunate (but avoidable) delay in filing returns, has meant the taxpayer incurs the cost of registering for VAT across multiple EU member states.
Out of the EU
No VAT article at this time, can pass without reference to Brexit. There are two MOSS schemes; Union Moss and Non-Union Moss. As the names suggest, Union MOSS is a scheme for EU based businesses and Non-Union MOSS is for non-EU sellers.
From January 2021, UK businesses with a UK (Union) MOSS registration will need to cease that registration and, if they intend to continue selling digital services to EU citizens, the UK business will need to register for Non-Union MOSS in an EU member state of their choice.
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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...