Since 1st January 2015 VAT has been charged in the country where the customer has ‘use and enjoyment’ of the services.
So lets say you are an American (normally zero rated) on holiday in France, even though you pay with an American credit card and buy from a UK supplier because you are reading your ebook in France, French VAT will apply. Sounds like a nightmare, doesn’t it.
To help with this HMRC introduced the VAT MOSS (Mini One Stop Shop).
But now, at last, it looks like common sense will prevail for small businesses.
The European Commission is proposing a threshold of €10,000 in online sales per annum before MOSS rules would apply. Businesses trading under that threshold will be able to apply domestic VAT rules. In support of this proposal, the Commission revealed that just 0.1% of all MOSS revenue has come from returns with a declared turnover of under €10,000.
In addition to the €10k threshold, SMEs which make less than €100,000 in cross-border sales will no longer be required to provide two pieces of data to prove the place of supply of their customers. This requirement had resulted in businesses spending thousands of pounds to reprogram their e-commerce operations in order to collect trivial amounts of European VAT. The EC now says that one piece of evidence will suffice for traders of e-services. Accountingweb
Before 1st January 2015 all businesses supplying telecommunications, broadcasting and e-services such as downloaded ‘apps’, music, gaming, e-books and similar services to private consumers located in other EU Member States (referred to as ‘B2C’ supplies) were taxed where the business supplier was established, which is simple to understand and implement.
Since 1st January 2015 VAT is now charged in the country where the customer has ‘use and enjoyment’ of the services.
So lets say you are an American (normally zero rated) on holiday in France, even though you pay with an American credit card and buy from a UK supplier because you are reading your ebook in France, French VAT will apply. Sounds like a nightmare, doesn’t it.
To help with this HMRC introduced the VAT MOSS (Mini One Stop Shop).
Then there is is the VAT return….
Box 2 Acquisition Tax is calculated as UK VAT due on VAT free purchase of goods from other Member States, i.e. 20% x Box 9 figure, the same amount is then entered in Box 4 (as noted below by HMRC) so the net effect is Zero.
Box 9 Total EU Purchases are the value of goods bought from other EU Member States on a VAT free basis.
The following are HMRC’s instructions:
Box 2: VAT due from you (but not paid) on acquisitions from other EU countries
You need to work out the VAT due – but not yet paid by you – on goods that you buy from other EU countries, and any services directly related to those goods (such as delivery charges). Put the figure in Box 2. You may be able to reclaim this amount, and if so remember to include this figure in your total in Box 4.
Box 4: VAT reclaimable on your purchases
This is the VAT you have been charged on your purchases for use in your business. You should also include:
VAT due (but not paid) on goods from other EU countries and services directly related to those goods (such as delivery charges) – this is the figure you put in Box 2
Before 1st January 2015 all businesses supplying telecommunications, broadcasting and e-services such as downloaded ‘apps’, music, gaming, e-books and similar services to private consumers located in other EU Member States (referred to as ‘B2C’ supplies) were taxed where the business supplier was established, which is simple to understand and implement.
Since 1st January 2015 VAT is now charged in the country where the customer has ‘use and enjoyment’ of the services.
So lets say you are an American (normally zero rated) on holiday in France, even though you pay with an American credit card and buy from a UK supplier because you are reading your ebook in France, French VAT will apply. Sounds like a nightmare, doesn’t it.
To help with this HMRC introduced the VAT MOSS (Mini One Stop Shop).
Overview
If your business supplies digital services to consumers in the EU, you can register with HM Revenue and Customs (HMRC) the VAT Mini One Stop Shop (VAT MOSS) scheme. There are 2 UK VAT MOSS schemes that operate in an almost identical way:
Union VAT MOSS scheme for businesses established in the EU including the UK
Non-Union VAT MOSS scheme for businesses based outside the EU (for example, the USA, Canada, China)
By using the VAT MOSS scheme, you won’t have to register for VAT in every EU member state where you make digital service supplies to consumers.
Once you register for a UK VAT MOSS scheme HMRC will set you up automatically for the online VAT MOSS Returns service.
You need to submit a single VAT MOSS Return and payment to HMRC each calendar quarter. HMRC will then forward the relevant parts of your return and payment to the tax authorities in the member state(s) where your consumers are located. This fulfils your VAT obligations.
Unless businesses opt to register for MOSS, businesses that make intra EU B2C supplies of telecommunications, broadcasting and e-services will be required to register and account for VAT in every Member State in which they have customers. MOSS will give these businesses the option of registering in just the UK and accounting for VAT on supplies to their customers in other Member States using a single online MOSS VAT return submitted to HMRC. This will significantly reduce their administrative burdens.
Examples of telecommunications services include: fixed and mobile telephone services; videophone services; paging services; facsimile, telegraph and telex services; access to the internet and worldwide web.
Examples of broadcasting services include: radio and television programmes transmitted over a radio or television network, and live broadcasts over the internet.
Examples of e-services include: video on demand, downloaded applications (or “apps”), music downloads, gaming, e-books, anti-virus software and online auctions.
Fiscalis conference (7th to 9th September 2015)
Representatives from all EU finance ministries were at the Fiscalis conference in Dublin last week to discuss the implementation of the new EU VAT rules, and how they have been working since their introduction in January 2015.
One of the key takeaways from the consultation was a general agreement that there should be a threshold to exempt smaller businesses from the rules. The commission stated that it intends to propose legislation for a threshold beneath which companies will be VAT exempt, but did not confirm a figure.
There was also a general agreement that above this threshold there should be what many are calling a ‘soft landing’: A simplified version of the rule for businesses that does not create a financial cliff for those who hit the threshold.
Let’s hope that an exemption can be put in place very soon and ideally as proposed in the EU VAT Action Campaign below
Please circulate this article as widely as possible, as soon as possible, with as many of your business contacts and other networks.
Write to your national tax authority and finance ministry, to your MPs, MEPs, other elected representatives and to any business organisations which you belong to, insisting that the EU act immediately to:
1. Introduce a threshold of €100,000 for cross-border trade (i.e. based on how much you’re selling digitally to the rest of the EU, outside of your home country). As far as your domestic turnover is concerned, your own country’s VAT rules will still apply.
2. Simplify the rules for all micro businesses (i.e. sub-€2m turnover) to allow ONE piece of data as evidence of place of supply, instead of the current 2-3, with that piece of data being the customer location as supplied by the payment processor to businesses using all levels of their services, not just to those purchasing premium options.
3. Immediately suspend these rules for micro businesses, so that they can revert to their domestic VAT rules and pay taxes according to those regulations during the 2 years it could take for the agreed idea of a VATMOSS threshold to become law.
4. Amend the legislation so that all Member States are legally required to direct their VATMOSS communications through the business’s home tax authority for all micro businesses, to remove the threat and fear of receiving demands and ‘system error’ letters from 27 different tax authorities.
One last thing; please take the few extra minutes to contact these people direct rather than using a bulk-emailing service. These websites have become a victim of their own success in flooding inboxes, so letters coming via these routes are increasingly ignored. You can still send the same letter to them all but you will need to copy and paste and send it individually to be most effective.
Back in June 2013 the EU passed a directive 2013/34/EU which changed the thresholds for small companies.
Present
Proposed
Turnover
£6,500,000
£10,200,000
Total assets
£3,260,000
£5,100,000
Average no. of employees
50
50
As before its a 2 out of 3 test. The Audit thresholds are unchanged.
The UK was required to transpose this into UK Law no later than 20th July 2015.
The Dept for Business Innovation and Skills (BIS) have just concluded their consultation (24th October 2014) and the plan is currently to implement the change for financial years starting on or after 1st January 2016.
This could mean that a company with a turnover between £6.5m and £10.2m will be required to prepare its accounts for year ended 31 December as follows:
2014 as a medium sized company under present UK GAAP;
2015 as a medium sized company under FRS 102;
2016 as a small company under the applicable accounting regime for small companies.
This might depend on whether the company could early adopt the new regulations for its 2015 accounts. The possibility of early adoption is one of the questions asked by BIS.
Surely BIS can see that not allowing early adoption will place an unnecessary reporting burden on Small Companies?
As part of the intensified battle against tax fraud, the Commission launched on 6th February 2014 the process to start negotiations with Russia and Norway on administrative cooperation agreements in the area of Value Added Tax (VAT). The broad goal of these agreements would be to establish a framework of mutual assistance in combatting cross-border VAT fraud and in helping each country recover the VAT it is due. VAT fraud involving third-country operators is particularly a risk in the telecoms and e-services sectors. Given the growth of these sectors, more effective tools to fight such fraud are essential to protect public budgets. Cooperation agreements with the EU’s neighbours and trading partners would improve Member States’ chances of identifying and clamping down on VAT fraud, and would stem the financial losses this causes. The Commission is therefore asking Member States for a mandate to start such negotiations with Russia and Norway, while continuing exploratory talks with a number of other important international partners.
From January 2017 the European Commission would like to make VAT returns monthly in all member states. Currently most UK businesses file quarterly, they only file monthly if they get regular refunds.
The European Commission see this as cutting red tape, but I am not sure how going from 4 returns to 12 returns cuts red tape?
The Commission say they have received complaints from companies who do business across Europe about confusion over the frequency of returns.
The EC is hoping to introduce a single format return, with just five mandatory boxes. This will include:
input VAT;
output VAT;
net VAT payable;
value of input transactions; and
value of output transactions.
and there could be a concession for small businesses allowing them to continue to do quarterly returns.
Do you think monthly returns would be better or worse for UK Business?
On the 21st February 2012, the European Union defined a new category of company, the ‘micro-entity’. Micro-entities are very small limited liability companies and qualifying partnerships.
Micro companies are those not exceeding two out of three of:
Balance sheet total: £289,415 (€350,000)
Net turnover: £578,830 (€700,000)
Average number of employees during the financial year: 10 (or fewer)
Subject to certain conditions, the Micros Directive permits Member States to relieve micro-entities, from the obligations to:
present “prepayments and accrued income” and “accruals and deferred income”
recognise certain types of “prepayments and accrued income” and “accruals and deferred income”
draw up notes to the accounts
prepare an annual report
publish annual accounts provided the financial data information contained in balance sheet items is filed with a designated competent authority.
The Government is seeking to make changes to the Companies Act 2006, and to the accounting regulations made under that Act and under EU law to implement the EU Directive 2012/6/EU of the European Parliament and of the Council (“the Micros Directive”). It would also make comparable changes to the accounting framework for Limited Liability Partnerships.
The ICAEW believes the lack of transparency and dearth of financial data would lead to more rejections of credit to these smaller organisations.
“We have a number of concerns about the suggested changes, as they may result in less transparency and less useful financial information. This, in turn, can over time have a negative impact on market confidence and on micro businesses’ ability to access finance, at least at the margins,” says Dr Nigel Sleigh-Johnson, head of the ICAEW’s Financial Reporting Faculty.
