Government tweaks controversial VAT MOSS ruling for small businesses

HMRC confirms EU regulation will not require small firms to charge UK VAT on domestic sales but will still need to register for "Mini One Stop Shop" from January 1

The government has clarified that the controversial VAT “Mini One Stop Shop” (VAT MOSS) EU ruling, set to be introduced on January 1 2015, will not require micro and small businesses to charge UK VAT on domestic sales.

The “tweak” from HM Revenue and Customs (HMRC) comes on the back of a series of lobbying campaigns by organisations and entrepreneurs calling for exemptions to be made for small UK firms after it was argued VAT MOSS would create a “VAT MESS” for sole traders and small firms.

From January 1, the new EU regulation would have forced all UK firms selling digital services and products in Europe, such as apps and e-books, to register for VAT in every country with VAT on digital products chargeable in the place of purchase rather than the place of supply.

As an alternative to registering for VAT in each country, small businesses would have to register for VAT MOSS by registering for VAT in the UK, which would then distribute VAT money to the rest of the EU states but make the seller liable for VAT domestically.

Following the VAT MOSS backlash, HMRC has announced that while small businesses below the current VAT registration turnover threshold of £81,000 still have to register for VAT in the UK to use MOSS, they will no longer be forced to charge UK VAT on domestic sales.

Businesses will be able to voluntarily register the cross border element of their business and then use that registration number to register for MOSS.

This confirmation is set to help reduce fears about the ruling penalising digital entrepreneurs selling in Europe, and also answers questions about the “fairness” of the ruling given that sole traders and small businesses, such as a teenager selling mp3 devices from home, would have to have followed the same regulations as tech giants such as Amazon.

Many businesses are still unhappy with the impending regulation but HMRC has confirmed that it will be producing guidance on how a business can register for VAT without having to charge VAT on its UK sales.

It has also clarified that small businesses trading in the EU will not have to register for MOSS by December 31 provided they notify HMRC by the 10th day of the month following the month in which they make their first cross-border supply. For instance, if a business makes a sale to the EU on January 19, it has until February 10 to notify HMRC and register for VAT MOSS.

How will VAT MOSS work?

Using VAT MOSS, you can account for the VAT due on your business to consumer sales in other EU countries by submitting a single quarterly return and payment to HM Revenue and Customs.

HMRC will then send an electronic copy of the appropriate part of your return, and any payment, to each relevant country’s tax authority.

If your business has supplied digital services to consumers in the EU, you can apply for VAT MOSS here.

To find out more about what VAT MOSS means for your business, click here.

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