Don't Get In A VATMESS over VATMOSS
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Okay, assuming you can hear us over the screaming and the panicking and the huge chunks of falling sky, it's time we talked about VAT MOSS, and how (or if) it affects you. Ignoring it and hoping it goes away, or that HMRC will not notice you, is not an option.
Since the 1st of January, the rules on VAT have changed so that tax on digital services within the EU is based on where the purchaser is, rather than the seller. It's actually a move designed to stop large businesses from routing all their sales through low-VAT countries to minimise the tax they pay. Unfortunately, it's having a lot of unintended knock-on effects on small businesses.
Basically, even if your taxable turnover is small enough to limbo-dance under the UK VAT threshold (currently set at £81,000), you're probably going to have to charge VAT on sales of digital services (as defined by HMRC here [LINK])to the EU, and do some extra paperwork. For example, you'll need to find a way of confirming where your customers are located, and there are rules covering what kinds of evidence you'll need to collect and how long you'll need to keep it.
Normally, this would mean registering yourself for VAT separately in each of the EU member states where you have customers, which is probably a lot more work than it's worth for many micro-businesses. However, HMRC has set up a "Mini One-Stop Shop" (the MOSS in VAT MOSS) which will allow you to submit a single VAT return and make a single payment. The MOSS system will take it from there and make sure all the tax gets where it's going safely.
There's been a lot of confusion, a fair amount of disinformation and no small degree of frenzy surrounding VAT MOSS, from incoherent rants on social media (search for #vatmess on Twitter for near-infinite examples) to professionally edited rants in the national press. It's undoubtedly a complicated and confusing system, especially if you're not used to dealing with VAT, and it's going to mean adjustments to many small businesses. That said, there are a few points that are worth keeping in mind before you start feeding your entire business into a shredder in despair.
- If you're not supplying digital services, stop reading here. You can go about your business.
The new rules don't apply to physical goods... yet.
- If you don't sell outside the UK, stop reading here. You can go about your business.
The normal VAT rules and threshold still apply within the UK.
- If your digital services require significant "human interaction" to deliver, stop reading here. You can go about your business.
Manually emailing a file to a customer doesn't count for the new rules. Automated downloads do.
- If you only sell to businesses, stop reading here. You can go about your business.
The new rules are strictly for sales to consumers, not to businesses.
- If you only sell through a third-party marketplace like Amazon, stop reading here. You can go about your business. Probably.
If you're not technically the seller, then the rules don't affect you. However, not all third-party platforms are treated the same way, so be sure of your footing. It's your responsibility to check what the situation is with your chosen marketplace.
As you've no doubt already noticed, "digital services" is a pretty vague term designed to encompass a huge range of business activities. You should check the HMRC website for any updates to the list, but at the time of writing their current advice applies to:
- Images or text, such as photos, screensavers, e-books and other digitised documents e.g. pdf files.
- Music, films and games, including games of chance and gambling games, and of programmes on demand.
- Online magazines.
- Website supply or web hosting services.
- Distance maintenance of programmes and equipment.
- Supplies of software and software updates.
- Advertising space on a website.
Keep in mind that this is not an exhaustive list, and if your "digital service" is merely similar to one of the items above, you might be caught up in the new rules. Always get professional advice if you're in doubt. This is particularly important as a lot of businesses are getting shaken up about the new system and arguing forcefully for change (see http://www.euvataction.org for an example). They've made some progress already, including getting the government to loosen some of the rules on information collection for a few months to give businesses a chance to adapt, so it's definitely worth staying up-to-date.
If you're a RIFT client, of course, then we can handle all your VAT as part of our service.
With reports of businesses closing up altogether and some apparent differences in how the EU's various member states are even implementing the new system, there's a lot of information to absorb and a lot of confusion surrounding VAT MOSS. You can find more of the fiddly details at the European Commission site , and remember to get in touch with us whenever you need to hear a calming voice from the RIFT.