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Brexit: Mixed messages for VAT MOSS users

HMRC guidance on gov.uk indicates that Brexit will immediately affect UK businesses using VAT MOSS from 1 February, in spite of the transitional period which runs until 31 December. However, HMRC press office confirmed on 29 January that this page is out of date.

VAT MOSS

The European Union (Withdrawal Agreement) Act was passed on 23 January 2020, which applied the legal foundation for the UK to leave the EU at 11pm on 31 January.

There should be few immediate changes, as the transition period will keep most UK laws aligned with those of the EU. However, the rights of UK traders to use the HMRC VAT Mini One Stop Shop (VAT MOSS) portal and enjoy the turnover exemption are in doubt.

HMRC guidance 

On 28 January, the advice on Gov.uk was that UK businesses will not be able to use UK’s VAT MOSS for sales of digital services made after 31 January 2020. Industry experts are divided as to whether this advice is correct.

Recap

The VAT due on digital and broadcasting services sold to non-business customers (B2C) in other EU member states must be charged at the rate applicable where the customer belongs, and paid to the tax authority of that country. VAT Mini One Stop Shop is the online mechanism which allows businesses to report and pay that VAT in one relatively painless exercise once a quarter.

These rules have applied throughout the EU, and for suppliers selling into the EU, since 1 January 2015. VAT MOSS allows the EU countries to work together to collect cross-border VAT, and distribute the tax to the right country.

The trade statistics show that the UK benefits significantly from the VAT MOSS mechanism. The UK received around €695m in 2018 under the VAT MOSS distribution, which was nearly twice the amount of VAT MOSS tax collected by HMRC to send to other EU member states in that year.

Exemption

The country-specific VAT turnover thresholds do not apply for international B2C digital services. This nil turnover registration threshold meant that micro-businesses were particularly affected by VAT MOSS; they had VAT reporting and payment obligations which don’t exist for domestic sales, which are governed by the normal VAT registration threshold.

However, following an extensive campaign by small businesses, an annual VAT MOSS turnover exemption of €10,000 was introduced from 1 January 2019. As long as the business does not breach this level of international B2C sales of digital services in the current year, or previous year, it doesn’t have to report or pay VAT under VAT MOSS.

For UK businesses the threshold was set at £8,818 per calendar year.

Non-EU

This VAT MOSS de-minimis threshold only applies for businesses located in EU member states. It would therefore follow that once the UK is no longer an EU member state on 1 February 2020, the VAT MOSS threshold will fall away to nil.

This position is supported by the advice on gov.uk which tells businesses that if they make sales of digital services to EU consumers after Brexit they must either: 

  • register for VAT MOSS in any EU member state or
  • register for VAT in each EU member state where they sell digital services to consumers

Non-Union scheme

The gov.uk advice correctly refers business to the non-Union VAT Mini One Stop Shop scheme that suppliers from outside of the EU must use.

The confusion is whether UK businesses must use the non-Union scheme from February 2020 (as stated on gov.uk), or from January 2021, as the transition period effectively keeps UK businesses in the EU VAT MOSS scheme until 31 December 2020.

** Update On 29 January 2020 HMRC press office provided the following statement “During the transition period time there will be no changes to our terms for trading with the EU or the rest of the world, unless the rules change for the whole of the EU. This means EU rules for customs, VAT and excise will continue to apply to the movement of goods.” HMRC also confirmed the guidance on VAT MOSS and Brexit would be amended.

Source: Accounting Web

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