January 2015 sees important changes to European Union VAT rules affecting businesses supplying digital services. Andrew Webb, senior VAT policy manager at HM Revenue and Customs, explains what this means, and what's being done to minimise its impact on businesses.
Currently, tax on the supply of broadcasting, telecommunications and electronic services, otherwise known as 'digital services, to private consumers is paid in the Member State where the supplier of the service is established. However, from 1 January 2015, tax will be paid in the Member State where the consumer is located.
Why make the changes?
These changes are an important step towards modernising the European Union (EU) VAT system. They ensure that cross-border supplies of services are taxed by, and under the rules of, the Member State where those services are actually used or consumed.
The change will level the playing field for UK businesses and consumers. It will also make sure that the UK government receives its fair share of VAT revenues on UK-consumed services.
However, the new rules could create additional burdens and costs for businesses which now find they have to register for VAT in every EU Member State where they supply digital services to consumers. That's where the VAT Mini One Stop Shop (VAT MOSS) online service comes in.
How does the Mini One Stop Shop work?
The VAT MOSS is an optional scheme which saves digital services suppliers from having to register for VAT in every Member State in which they sell digital services. Businesses with their main operation or headquarters in the UK will register with HMRC to use the scheme.
Using the VAT MOSS, which businesses can register to use from October 2014, will mean they can submit a single quarterly VAT MOSS return and payment, to just one Member State tax authority, to cover all their EU business to consumer supplies. The VAT rate used will be that of the Member State where each consumer is resident or located when the service is supplied.
To take advantage of the VAT MOSS, businesses which aren't registered for VAT need to register for VAT, and then register for the VAT MOSS in the same Member State. After that they will then only have to submit one VAT MOSS return to cover all their EU digital supplies.
What about non-EU businesses?
Those who aren't based in, or registered for VAT, in the EU but make digital service supplies to EU consumers, can register in any state to use a non-EU VAT MOSS online service. In essence, this is a slightly expanded version of the current EU VAT on E-services (VoES) scheme.
HMRC is sending detailed information to businesses registered in the UK for VoES to enable them to register for the new non-EU VAT MOSS service if they so desire.
How do you register for VAT MOSS?
Any business registering for VAT MOSS will need to provide information to the Member State where they register to use the scheme – known as the Member State of Identification (MSI). However, because they must already be registered in this country for VAT, very little additional information will be required.
Here in the UK, businesses will be asked to provide this detail through HMRC's Online Services portal: from October, they can add VAT MOSS to their list of services by logging in and selecting "Register for HMRC taxes".
How do you submit a return?
Businesses will have to submit VAT MOSS returns to their MSI within 20 days of the end of each calendar quarter. If no supplies are made, they just need to record nil returns.
Any business registered to use VAT MOSS will have to use it to account for VAT on all their digital service supplies made to consumers in every EU Member State where they don't have a fixed establishment.
HMRC will provide exchange rate information to help firms complete their returns, but all those submitted to it via VAT MOSS will have to be completed in pounds sterling.
Can agents use VAT MOSS?
Because VAT MOSS is an optional service aimed at making things easier for affected businesses to deal with these VAT changes, agents won't be able to register for it on behalf of their clients. This is set out in the EU legislation on the rule changes.
However, businesses can register for the online service and then authorise an agent to act on their behalf. Once this happens, the agent can submit and view returns, make payments and more.
Both businesses and their agents will need to consider whether their existing processes will still work after 1 January 2015. Any company affected by the changes is likely to have to change its contracts. They'll also have to meet new record-keeping requirements for both the services they supply, and where the customers they supply are located.
These are significant changes, and as a result it's important that businesses, and any agents acting on their behalf, think about them sooner rather than later.
For more information on the VAT place of supply changes and the Mini One Stop Shop, visit www.hmrc.gov.uk/posmoss