A group of one-woman, kitchen-table microbusinesses has succeeded in persuading the EU to change its collective mind on VATMOSS.
This is the shorthand name for the operation of the cross border VAT rules for sales of electronic services to consumers across the EU.
The VAT rules were changed in 2015 to make the ‘place of supply’ for transactions the location of the customer, rather than the location of the trader. These changes were made to prevent the erosion of the VAT base by international companies booking their sales in low VAT jurisdictions.
The change included the concept of a "mini one stop shop" (MOSS) to simplify VAT reporting and payment. Using the MOSS, traders would be able to report and pay the VAT via their own country's VAT authority rather than having to register in every country in which they traded.
However, the changes entirely overlooked the existence of a whole class of microbusinesses. Perversely, the rules designed to prevent large platforms from gaming the system seemed likely to prevent small traders from trading on their own account rather than via a platform, because the administrative burden imposed by VATMOSS was disproportionate.
The core problem is that there is currently no de-minimis level of reporting for VATMOSS. In theory just one international transaction would bring a trader within the VATMOSS reporting regime, whether they were VAT-registered in their home country or not.
After a sustained campaign, the rules have been relaxed. The European Commission press release on 5 December confirms that the previously announced changes have been ratified by ECOFIN.
From 1 January 2019 there will be:
- €10,000 threshold below which the VATMOSS rules will not apply; and
- €10,001-€100,000 buffer zone where there will be "simpler procedures".
The first provision will mean that the very smallest UK start-ups and micro businesses will not be brought within the VAT rules at all (as the €10,000 limit is well below the current UK VAT registration threshold).
The "simpler rules" are in response to the concerns raised about the genuine impracticality of, for example, being able to obtain and retain two separate pieces of customer location data.
These changes represent a sensible way forward, which take account of the reality of the very smallest businesses, such as authors selling their own ebooks
from their own websites. At this entry level of trading the administrative burden of compliance was wholly disproportionate to the business' potential turnover, let alone to the potential VAT liability.
The EU VAT Action group are to be congratulated for this achievement. Not only for the result itself, but also for forming a campaigning organisation from scratch and becoming accepted as a legitimate stakeholder in a remarkably short space of time.
The stakeholder model is fine when you are a member of a professional organisation, trade body, or lobbying group. You can contribute to tax policy making by responding to HMRC's consultations, or your membership fees may be pooled to pay for professional policy workers to respond on the organisation's behalf.
The stakeholder model is perhaps less helpful to one person microbusinesses, who can barely afford rent, rates and accountancy fees, let alone membership of a trade federation, or take time out of operating the business to respond on their own behalf.
It is a remarkable success story, as explained in the video of the announcement. However, traders in the UK may have only a short time to enjoy it.
The relaxed rules are due to come in from 1 January 2019, but if the UK leaves the EU on 29 March 2019, HMRC may not be eligible to act as a "mini one stop shop" for UK traders selling into the EU after that date.
About Wendy Bradley
Wendy Bradley is a retired tax inspector, now working as a freelance journalist.