I hope by now all tax advisers know not to rely solely on the UK VAT registration threshold to decide whether clients need advice about VAT. If you look here instead you will see that, for some clients, the threshold is actually zero.
“For cross border supplies of digital services there is no registration threshold and VAT is charged at the rate due in the consumer’s country.”
If your clients are selling downloads, web hosting, eBooks, PDFs, MP3s or online courses to non-business customers they fall under this legislation and you need to review their VAT status.
So what guidance is there in the newly published VAT Notes 2016 Issue 1? There is a promising subheading: “VAT MOSS - simplifications for businesses trading below the VAT registration threshold” but the substance is merely a link to the Revenue and Customs Brief 4 (2016) issued in January and updated in February.
The news isn’t all bad, and perhaps now’s the time for a quick summary of the issues and where we stand.
Author Corey Doctorow famously tweeted that his first VAT MOSS return had cost him over £700 in software and accounting fees to calculate that he owed £18.74. In the TIIN for the changes (page A113 here) HMRC foolishly assessed the likely burden as about £40 a year for businesses already in the VAT system and £220 a year for the mere 5,000 small and micro businesses they thought might be affected.
The figures in, anecdotally, from affected businesses vary but there are numerous examples of trivial payments completely outweighed by the costs of making them. Overall VAT MOSS for micro and nano businesses seems to have a steep learning curve, a disproportionately high entry fee, and then to be an ongoing irritant.
Paying UK VAT
In the TIIN and for some time after its publication HMRC were telling traders below the VAT registration threshold that, if they were caught by VAT MOSS, they would have to register for VAT for ALL their trading activities.
This one was fairly swiftly put to rest, however. What they actually have to do is register for UK VAT in order to get into the MOSS system, but there’s a special category of registration they have to select that lets them into MOSS but doesn’t require them to apply VAT to their UK sales unless and until they reach the £83,000 limit (and no, I don’t know whether that’s exclusive or inclusive of their VAT MOSS trading).
They still have to make nil returns every quarter for "mainstream" VAT though, as well as completing their MOSS returns.
There’s an extensive list of the records companies have to keep and they have to keep them for ten years and be able to send them electronically to HMRC if asked.
When introduced this led to some initial panic, particularly as HMRC said they would need to register as data controllers if they were keeping customer details for ten years, but there was a swift u-turn when it was pointed out that there is an exclusion for ordinary accounting data. This contradictory information is still there on gov.uk - you have to check the dates on the guidance.
If you sell something via a download from a website, how do you know where your customer is located? The requirement to keep two pieces of non-contradictory location information was a particular issue for small businesses, particularly as most of the payment providers (Paypal, for example) don’t supply that information to the seller.
The good news here is that the concession HMRC made that they would accept only one piece of location information from sellers below the UK VAT threshold is to continue indefinitely.
Get out of jail free?
There has at least been one other piece of good news for the very smallest trader, albeit a rather insulting one: they can be dismissed as mere hobbyists and walk away from the system altogether.
“If your sales are not being made as a business - for example as a hobby activity with occasional sales rather than a commercial activity - the changes don’t apply to you and you don’t need to register for VAT or use VAT MOSS”, states HMRC’s briefing document on the subject.
What comes next?
Followers of the VAT MOSS saga on AccountingWEB will know that there are plans afoot to "reboot" the VAT system Europe-wide, and this may well include a threshold higher than zero for small traders: a sensible reform long overdue.
In recognition of their sterling work in getting us to this place, perhaps the last word should go to the EU VAT campaigners themselves: “Interim easement while the legislation is revised is still desperately needed as the regulations remain unworkable for small digital businesses.
“The most useful thing the accountancy profession can do for clients hit by this is to urge their professional bodies and any business organisations where they are members, to lobby Whitehall and Brussels for digitally-delivered services to be brought under the existing distance selling thresholds, as an interim solution."
Now why didn't HMRC think of that?