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Brief release from VATMOSS rules

20th Sep 2018
Creative Commons

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.

Grassroots action

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.

What’s new?

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.

Mayfly law

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.”


Replies (6)

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By Paul Soper
20th Sep 2018 18:12

If only it were as simple as persuading HMRC - the wording of SI mirrors an EU Directive which requires that the de minimis applies BUT only to a person within the EU - it would be necessary to persuade the whole EU to apply the de minimis to traders both within and without the EU and the chances of that are - I was going to say slim but I was amazed at the tenacity shown by the people involved in the campaign, and feel honoured to have been a member advising on the sidelines - who knows perhaps it is possible to persuade the EU to expand the de minimis but it is such a shame that such a hard fought battle is frustrated by the idiocy that is Brexit...

Thanks (1)
By dgilmour51
24th Sep 2018 11:14

"HMRC has published ... 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."
Is there not a punctuation error here - should it not read ...
"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."

The day HMRC indulges in any meaningful 'consultation', in the sense of paying the slightest attention, hell will freeze over.
As you point out, it would be cheaper to extend the so called 'consultation period' to May 2019 and save ourselves the on-going added costs arising from a seven-day-wonder interregnum, that will hang about for years.

Thanks (0)
By Paul Soper
26th Sep 2018 11:56

Clare Josa has just pointed out a further problem here - if you are already registered under the UK MOSS you will not be able to submit a MOSS return for the quarter to 31 March 2019 because we will no longer be in the EU if we crash out without a deal and a transitional period. The EU has advised her that traders, to use the MOSS would need to join a non-union MOSS, such as the one in the Republic of Ireland, from 1 January 2019. We assumed that one would need to register from 1st April to account for VAT on EU sales on 29, 30 and 31st March - however this puts a considerable spanner in works. Why, you ask, there is a solution? It's not a solution, it's a Catch 22 - you need to register with a non-union scheme from 1 January to be able to submit a MOSS return at 31 March 2019 BUT - you can't join the Irish non-union scheme because on 1st January 2019 you are still inside the EU...

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By Paul Soper
26th Sep 2018 12:07

Clare has just suggested that if we can't make a return for the quarter to 31 March 2019, and we can't join a non-union scheme as an alternative for that quarter because on 1 January we will still be in the EU then EVERY registered trader will be in default for that quarter and subject to potential audit and penalties imposed by EACH of the remaining 27 member states that would have been on that return... Catch 22 indeed

Thanks (1)
By Paul Soper
26th Sep 2018 12:22

Here's a link where Clare explains from a lay perspective https://www.facebook.com/CJosa/videos/1956635954629625/?hc_location=ufi
And a clearer picture on Youtube - https://www.youtube.com/watch?v=-TdapeYIy00

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By Wendy Bradley
26th Sep 2018 23:07

One of the problems with the whole VATMOSS VATMESS has been the lack of input from the tax profession - the micro businesses chiefly affected are often too small to use accountancy services. I’d really like to see the profession step up in support of these taxpayers. How about hitting the Budget Suggestions page (before this Friday, 28th) and asking for some creative thinking in the Budget?

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