The VATMOSS victory I reported on last year is now being legislated for, but this could be a mayfly law, which will disappear, for UK businesses on a no deal Brexit.
The VAT rules on the place of supply for electronic sales to non-business customers (eg authors selling their own ebooks direct to readers) changed in 2015, so VAT must be charged at the rate applicable where the customer is located, not where the supplier is. This change in VAT rules was to stop multinational businesses from gaming the system, but it completely screwed the one-person micro-businesses that HMRC didn't realise existed.
A group of campaigning micro-traders managed to get themselves organised, registered as lobbyists, and – miraculously – to persuade the EU of the sense of their position. Last December the EU announced there would be a €10,000 turnover threshold below which the VATMOSS rules would not apply, as well as some simplification measures for businesses with a turnover between €10,001 and €100,000.
HMRC has published two draft statutory instruments and an impact assessment for the legislation to transpose the EU changes into UK law from 1 January 2019. This is a routine element of the consultation process: after the decision has been made, the legislation should be published for what's referred to as a "technical" consultation.
Effectively at this stage, no-one wants to re-hash the policy arguments, but the legislation is released for a final check that it does what it says on the TIIN. You could think of it as crowd-sourced proof-reading.
The draft statutory instruments (SIs) are a bit hard to follow. What the legislation seems to say is that, in this SI, there will be a new £8,818 threshold below which the VAT MOSS legislation won't apply. Also in this SI, the rules for VAT MOSS registration and for registration under national VAT are separate distinct schemes. ("MOSS" stands for the "mini one stop shop" that lets you register just once instead of in each EU member state.)
Pounds not Euros
Why translate the €10,000 threshold into sterling? There are easily available examples of legislation which give thresholds in euros. What happens if the pound tanks in January so that €10,000 is suddenly a zillion pounds or vice versa so €10,000 becomes worth about 7p?
Why not future-proof your legislation by sticking to the actual currency in which the limit is delineated? The reason given for using sterling rather than Euros is that UK traders make their VAT MOSS declarations in sterling, so the threshold has to be fixed in sterling as well.
The real problem with this draft law is that it isn't future proofed at all. It's mayfly legislation: it will apply from 1 January 2019 to 29 March 2019 when the UK leaves the EU, and all UK businesses find themselves in a third country in relation to the EU. At that point, unless there's something else agreed, UK micro-businesses will be outside of the simplification provisions and into the Non-Union VAT MOSS scheme.
This implies that UK micro businesses will lose the €10,000 threshold and have to account for VAT wherever they sell in the EU. This point is confirmed in the VAT guidance on no Brexit deal, which says:
“If the UK leaves the EU with no agreement, businesses will no longer be able to use the UK’s Mini One Stop Shop (MOSS) portal to report and pay VAT on sales of digital services to consumers in the EU. Businesses that want to continue to use the MOSS system will need to register for the VAT MOSS non-Union scheme in an EU Member State.”
Clare Josa, author & microbusiness advocate, co-founder of EU VAT Action remarks “The €10k de minimis threshold and the sub-€100k simplifications are essential to keep microbusinesses trading under the 2015 EU Digital VAT rules. Without them we would have to geoblock all EU27 digital sales or move our businesses to 3rd party platforms, paying up to 70% in fees. It is essential that the government takes urgent measures to maintain UK microbusiness access to these thresholds and the UK’s VATMOSS system, whatever happens with Brexit.”
About Wendy Bradley
Wendy Bradley is a retired tax inspector, now working as a freelance journalist.