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VAT Changes and MOSS Explained- Do new EU rules affect you?

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VAT MOSS explained - do new EU VAT rules affect you?VAT changes and MOSS explained

With the new year bringing in important changes to how VAT is applied to digital products in the EU the kind folks at Crunch Accountancy offered up some valuable insight into all things VAT MOSS and EU VAT related to help....

"The new year brings some changes to the way VAT is paid on digital products in the EU - and small business owners are not very happy about it. What are these new rules and what effect might they have on your business?

What’s changed?

Currently, when selling a digital product or service to an EU customer, the VAT rate is set by the location of the supplier. So, if you’re a UK business, you’ll pay 20% on any amount over the VAT threshold.

As of 1 January 2015, the EU VAT rate will be set by the 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 will have to charge the German VAT rate on the sale.

So, does this mean you have to now register for VAT in every EU member state where you have customers? Thankfully not. HMRC has introduced a scheme called MOSS (Mini One Stop Shop) which you can use to pay VAT on all your EU sales.

What are the complaints?VAT changes and MOSS explained

There are some serious problems with the new rules and small business owners have been relentlessly campaigning to lessen the impact of the changes. The biggest complaint was that they’d be forced to pay VAT on all their sales, even if they did not meet the UK VAT threshold of £81,000 gross annual turnover.

A small victory was made in this respect. After some hard-fought lobbying, HMRC conceded that although still obliged to register for VAT in the UK to use MOSS, suppliers will no longer be forced to charge UK VAT on their domestic sales. Any cross border sales, however, will still be liable for added tax.

Another issue for small businesses is the burden the new rules impose on collecting location information from the consumer. This obviously has to be done to ensure the correct rate is paid to the correct member state - but lobbyists say it’s too much of an administrative burden for small businesses to bear.

Sellers will need to figure out:

Whether the buyer is a B2B or a B2C client
The geographical location of the place of supply of the item
Whether or not the buyer’s place of supply country requires you to issue them with a VAT invoice

Sellers will also be required to acquire and keep at least two of the following pieces of info from their customers:

  • Billing address
  • IP of consumer’s device
  • location of the bank
  • country code of SIM card
  1. location of landline
  • other commercially relevant information that determines location

A further concern arises at this point. If sellers are storing all this data, will they be forced to register with the Information Commissioner's Office (ICO) under Data Protection laws? This would add yet another administrative burden.

Do the new EU VAT rules affect me?VAT changes and MOSS explained

It’s estimated that about 34,000 UK SMEs will be affected. There’s a five step checklist to see whether the new EU VAT rules affect you. You must ask yourself whether:

  1. You supply broadcasting, telecommunications or e-services?(ebooks, games, apps, music downloads)
  2. For money
  3. To consumers
  4. In another EU country
  5. Without using a marketplace

Many small businesses sell their products through third party marketplaces. It’s important to understand that under the new rules, this actually constitutes a ‘business to business’ (B2B) sale, rather than a ‘business to consumer’ (B2C) sale, which shifts the VAT burden from the seller to the marketplace.

You can determine whether the sale is B2B or B2C by answering the following way. If the customer produces a VAT number then the supply is considered to be B2B, and therefore out of the scope of the new rules. If no VAT number is produced then the supply will be considered as B2C and the new EU VAT rules apply.

Still confused?

We don’t blame you. One of the biggest criticisms of the new rules is that it just doesn’t make sense. HMRC tried to clear things up by producing a flow chart. But, surprise surprise, it’s not particularly user-friendly.

Here's a quick video from Crunch accountancy that should help to explain things further.

How the new EU VAT rules and MOSS will affect you

The folks at Crunch Accounting share their expertise on how the new EU VAT rules and MOSS could impact on you and your business.


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Published on: 22nd December 2014

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