Where does that leave us?
The new place of supply rules took effect on 1st January 2015 and affect supplies of:
- digital services
- to consumers
- within the EU
So, what are digital services? Broadcasting, telecommunications and electronic services including internet streaming services, mobile phone services and apps, automatic downloads and online services with minimal or no human intervention. Digital or BTE services do not include advice sent on email or files sent manually by email. Nor do they include booking tickets or buying goods etc on the internet. Merely using the internet does not mean an e-service is provided.
And what is a consumer? Essentially, a private individual, an unregistered business or a non-business organisation. A VAT registration number is the most straightforward test of this. If the recipient of the supply cannot give a VRN then it is prudent to treat them as a consumer although HMRC will allow alternative evidence for unregistered businesses. And if a business uses a platform or gateway such as Amazon or eBay then normally it will be the platform or gateway which is affected by the changes, not the business.
Also, the changes only affect digital services supplied within the EU. If supplied outside the EU they are outside the scope of UK and EU VAT. So there is a shift from the Member State of supply to the Member State of consumption, and because VAT is theoretically a tax on consumption that makes sense in principle.
MOSS Returns are different from UK VAT Returns. Firstly, only output tax is declared on a MOSS Return. Any input tax to be claimed is included in the UK VAT Return. And unlike UK VAT Returns all MOSS VAT Returns cover specific quarterly periods: 31st March; 30th June; 30th September; and 31st December (whereas UK VAT periods can cover any quarterly period). And they must be submitted and paid online by the 20th of the following month.
A business cannot register for MOSS unless it is also registered for VAT. This created an issue for businesses trading under the UK VAT threshold of £81,000 but making supplies of digital services in other Member States. Until the changes in December 2014 this would have meant that from 1st January an unregistered UK micro-business would be either unceremoniously corralled into the UK VAT regime and obliged to charge VAT to UK customers even though below the threshold or, alternatively, compelled to register in any other Member State where supplies were made (whatever the value).
However, there was a last minute change of heart from HMRC and though an unregistered business will still have to register for VAT to use MOSS, it will not be required to charge VAT in the UK if under the threshold. It will still have to submit VAT Returns but these will be nil. On the plus side it will be able to claim as input tax that proportion of VAT incurred which relates to the EU supplies.
HMRC also require businesses to retain evidence of the customer’s location. For example: for services delivered via telephone boxes, kiosks, wi-fi hotspots, landlines or hotel lobbies etc the place of supply is the Member State where these are located; for mobile phones the Member State country code of the SIM card; for transport the Member State of departure. Otherwise two items of evidence must be retained including the customer’s billing address and the country code of the customer’s bank or credit card. As a transitional concession until 30th June 2015 small businesses can rely on information provided by the payment provider to allow them to upgrade their software to meet the new requirements. While an EC Sales List is not required for these supplies the new data requirements means that businesses will probably be required to register with the Information Commissioner’s Office.
VAT MOSS is a precursor to a more integrated and logistically more efficient EU VAT regime and it is intended as it progresses to encompass different types of intra-community supply. There are problems for a few businesses at the top and a number at the bottom but the great majority of business should find VAT MOSS beneficial.
But only time will tell!