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VAT MOSS traders question business status

11th Jan 2016
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Businesses caught up in the EU VAT changes are considering if they are actually “in business” and within the scope of the VAT MOSS scheme, following a recent HMRC briefing document.

The tax authority's latest guidance states that the compliance rules only apply “where supplies are made in the course or furtherance of a business”

“If activity is carried out as a hobby (i.e. only on a minimal and occasional basis)”, the statement continued, “HMRC does not normally see this as a business activity for VAT purposes.” 

As outlined by VAT expert and AccountingWEB contributor Les Howard, this may offer traders who are simply pursuing a hobby, making occasional or low value sales, the chance to argue that they are not a business and deregister entirely from the scheme.

VAT MOSS traders may not be 'in business'

HMRC’s briefing goes on to say that its analysis of VAT MOSS returns submitted by businesses in 2015 indicates that “some of those registered for VAT MOSS may not be in business for VAT purposes.”

The tax authority said that it will contact those who have registered for VAT MOSS whose returns suggest they may not in business.

However, AccountingWEB’s tax editor Rebecca Cave felt that HMRC’s approach to such traders had a number of shortcomings.

“You’re talking about self-employed individuals who pay income tax ”, said Cave. “I don’t think HMRC is looking at the correct data, because it can’t possibly be tallying the VAT MOSS return with an income tax return to tie up all the trading data to determine whether somebody is a trading business or not.

“VAT MOSS started a year ago on 1 January 2015. The income tax return for the first three months of that period is due into to HMRC by 31 January 2016. The income tax return for the rest of the year is not due to be filed with HMRC until 31 January 2017.

“It says in the briefing that they’re going to be writing to people to say ‘we don’t think you’re a business’ when they don’t have the data to do that. This will confuse the taxpayer if they really are a proper business to think ‘I’m not a business, maybe I shouldn’t even declare my online sales for income tax.’

“It’s interesting that HMRC is trying to get itself out of this by saying ‘you’re not really trading so you don’t have to worry about this”, continued Cave. “It's always saying that people trading online, for example eBay sellers, have to declare all their income because the online selling amounts to a trade. HMRC very rarely says ‘you’re selling only four or five items over 12 months, you’re not trading’ – except now when it is in HMRC's interests to say that.”

Several experts have also pointed out that although the reforms were initially set up to ensure multinationals paid their fair share of VAT in the EU, the fact that HMRC employees will be reviewing individual payments (sometimes in the tens or hundreds of pounds), made by micro-businesses in order to remove them from the system is yet another example of how wrong it has gone.

Location data ‘best judgement’

The document also attempts to simplify the requirements for businesses to provide two distinct pieces of data to prove the customer’s place of supply. According to the briefing, HMRC now allows businesses below the UK VAT registration threshold to “exercise their best judgement”.

“This means businesses can rely on any single piece of information”, the document said, “such as the address provided by the customer, to determine where their customer is located.”

However, concern has been expressed that the term ‘best judgement’ might not stand up in a dispute, as another EU member state could technically demand that traders provide multiple data points for proof of supply.

Additional administrative burden

Since 1 January 2015, businesses providing digital services to EU consumers have to charge customers VAT at the rate of the country where the customer buys the service from, rather than where the supplier is under the previous rules. Small business groups argued that the rules were difficult and expensive to comply with and would hinder online commerce.

HMRC attempted to help small businesses comply by introducing an online VAT registration system − the VAT Mini One Stop Shop (MOSS) – allowing businesses to register once with HMRC for VAT in every EU country.

However, many traders have continued to complain that the system is too complex, and proving the location of customers adds an additional administrative burden to small business owners trying to comply with the changing rules.


Replies (5)

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By ireallyshouldknowthisbut
11th Jan 2016 16:05


Do we know how many firms are actually filing MOSS returns?

There was an estimate of 350,000 in the UK from a government business department.

HMRC's original estimate was 5,000 

Our clients have been somewhat reluctant to spend hundreds of pounds on compliance costs for not much tax to the point I have explained it several times, but not actually filed one yet. 




Thanks (1)
By Tom Herbert
11th Jan 2016 16:21

In July...

... it was 2,400 according to HMRC, and they were expecting 3,500 by the end of the year. Will see if I can get hold of some more up-to-date figures.

The UK's 2,400 was apparently 20% of the total sign-ups for the whole of the EU.

Thanks (0)
By ireallyshouldknowthisbut
11th Jan 2016 16:42


Even 3,500 is woeful, especially if HMRC is complaining about lots of small traders doing it for shrapnel.  The actual numbers who SHOULD be doing this might not be 350,000 but it must be over 100,000, if not 200,000.  I guess what matters really for the small trader is if anyone bothers with enforcing compliance to make the cost of compliance less than the cost of not complying. 


Thanks (1)
By Tom Herbert
11th Jan 2016 16:54


... is the crux of the matter. I've heard (unsubstantiated) tales of other EU states quietly telling businesses not to bother as it's not worth the while for the tax authority to pursue. It'll be interesting to see how this develops, particularly if the EU plans on rolling the scheme out for physical goods...

Thanks (0)
By Tom Herbert
12th Jan 2016 13:37

Updated figures...

... from HMRC:

"The UK currently has over 2,760 registrations and the total number of registrations across the EU (including the UK) is nearly 13,500."

So just over 20% from the UK.

Thanks (0)