Who is affected?
The VAT (Moss) rules will affect all businesses that supply digital services to consumers, known as Business to Consumer (B2C). This includes broadcasting, telecoms, and e-services.
If you supply digital services to businesses for the purpose of them selling on, known as Business to Business (B2B), then these changes won’t affect you.
To find out more about VAT when trading overseas, please click here.
What are the previous rules?
The previous rules state that when you invoice a consumer (B2C), in the EU, the VAT is charged at the seller’s location, so you’re charged the UK VAT rate of 20%. This is only relevant if you’re VAT registered.
What are the new rules?
According to the VAT moss rules, the VAT rate will now be set by your customer’s location, and will be charged whether or not you are VAT registered.
For example, if you sell digital games to a consumer in Germany, you’ll have to add German VAT to the sales invoice and pay this to the VAT authorities in Germany.
What counts as a ‘Digital Service’?
Supplies of images or text, such as photos, screensavers, ebooks and other digitised documents
Website supply or web hosting services
Supplies of software and software updates
Downloads of pre-recorded videos
What doesn’t count?
Supplies of goods, where the order and processing is done electronically
Supplies of physical books, newsletters, newspapers or journals
Services of lawyers and financial consultants who advise clients through email
Booking services or tickets to entertainment events, hotel accommodation or car hire
Educational or professional courses, where the content is delivered by a teacher over the internet or an electronic network (in other words, using a remote link)
Offline physical repair services of computer equipment
Advertising services in newspapers, on posters and on television
What if I sell from an online store or gateway?
If your sell a ‘digital service’ via an online store (such as Amazon), then they will be considered to be supplying the consumer, known as Business to Consumer (B2C), which means they will be responsible for declaring and paying VAT due. However, you will be treated as supplying the store and therefore making a Business to Business (B2B) supply. If this is the case, the rules don’t directly affect you.
You will need to check with your clients, the online store, to see if they are acting in their own name, or merely as an agent. The latter means the supply is B2C and you’ll have to apply the local VAT rate to the final consumer.
What is a Mini One Stop Shop (MOSS)?
To save you having to register for VAT in every EU Member State where you supply your digital services, you may opt to use the VAT Mini One Stop Shop online service (VAT MOSS). With MOSS, you can declare and pay VAT to a single elected EU Member State for all your EU sales, avoiding the need to register for VAT in multiple countries.
What can I do now?
You should find out whether these changes apply to you as soon as possible, so you can start paying the correct rate.You’ll need to know the VAT rates across Europe in order to move forward.
Although using MOSS means you won’t have to register separately for every EU country you sell to, you must be VAT registered in the UK to use it.
Updated guidance for non-registered UK businesses
For businesses not VAT registered because they fall under the £85,000 VAT threshold, these changes left only two options: register for VAT in every EU country where you sell to or register for MOSS. The second option also requires registering for VAT in the UK, which would mean you would have to account for your UK sales, despite falling under the threshold.
HMRC has now updated its guidance, saying now that if you who want to use MOSS and your turnover is below the UK’s £85,000 VAT threshold then there will be a simplified registration arrangement. This will allow you to register for UK VAT and MOSS, receive a UK VAT number, but won’t be liable to pay VAT on UK sales.
Can I reclaim VAT on expenses and purchases?
As you won’t be charging VAT on your UK sales, any VAT you reclaim on your business expenses and purchases must either be wholly attributable to your cross-border EU sales or split according to the proportion which is attributable to EU sales.
For example, if you buy a computer to use as part of your business: if 60% of sales are UK sales, and 40% cross-border EU sales, you will only be able to recover 40% of the VAT charged on the purchase of the computer.
Do I still need to complete UK VAT returns?
You will need to complete a UK VAT return each quarter, even if you aren't charging VAT on your UK sales. This means when creating sales invoices you should mark the VAT in your Crunch account as out of the scope of VAT.
Unless you wish to reclaim VAT on business expenses or purchases in relation to your EU sales, you’ll have to enter all expenses as out of the scope of UK VAT. If you wish to reclaim VAT in relation to EU sales, you will enter standard VAT for all relevant expenses.
This may seem complicated, but your Client Manager is always available to help you understand the whole process. Give them a call or email and you can get started.