Money Matters
The VAT MOSS rule change: Does it apply to you?

What counts as digital services?
Digital services include broadcasting, telecommunications and e-services. The electronic supply of e-services is therefore caught by the change in the rules. HMRC list out some examples of e-services, which include things like:- Images or text, such as photos, screensavers, e-books and other digitised documents e.g. pdf files;
- Music, films and games, including games of chance and gambling games, and of programmes on demand;
- On-line magazines;
- Website supply or web hosting services;
- Distance maintenance of programmes and equipment;
- Supplies of software and software updates;
- Advertising space on a website.
Minimal or no human intervention
So what counts as minimal or no human intervention? An automatic download or email with the content has minimal or no human intervention. If the seller simply attaches the digital content to an email pre-populated with the customer’s details then that is also minimal intervention. HMRC has provided some examples of electronic suppliers and whether or not they are digital services in their policy paper which is well worth a read.Registering for VAT MOSS if you are under the UK VAT registration threshold
If you are under the UK VAT registration threshold but you sell digital services into other EU member states then you either need to:- Register for VAT in every member state that you sell into to consumers; OR
- Register for the VAT Mini One Stop Shop (“MOSS”) which will help you to manage the process.
- Apply for UK VAT
- Search by business activity and then enter digital services in the text box
- Then select “Supplies of digital services (below UK VAT threshold) under MOSS arrangements”
Registering for VAT MOSS if you are over the UK VAT registration threshold
Life is a little less complicated if you are already registered for VAT in the UK. The same timelines apply for registering for VAT MOSS, but it is easier for you to get on and do it now as you already have a VAT registration number.Reclaiming VAT on your expenses and purchases
If you are below the UK VAT threshold one small upside is that you will be able to reclaim some VAT on your expenses and purchases. Anything that is “wholly attributable” to your cross-border digital services sales can be reclaimed, as can a percentage of anything that partly relates to those sales. So for example if you buy a computer which you use to make all your sales, and 40% of the sales are to customers in the other EU member states, then you can recover 40% of the VAT you paid when you bought the computer.Completing the returns
Your UK VAT return will need to be completed every quarter even if you are not charging VAT on your UK sales. The VAT return will be very straight forward if you are not charging VAT on UK sales. If you are not reclaiming any VAT (see above) then you simply enter ‘0’ in every box. If you are reclaiming VAT then you should complete boxes 4, 5 and 7. If you are charging VAT on UK sales then your UK VAT return is completed in the same way as before. The VAT MOSS return has to be completed once a quarter, and is on a calendar quarter basis (e.g. Jan-Mar, Apr-Jun, Jul-Sep, Oct-Dec) even if your UK VAT return is not. If you register for VAT following the above steps to take advantage of the simplified VAT arrangement then HMRC will ensure that your VAT quarter matches so you can complete both the returns at the same time.Record keeping
Another very problematic area for micro businesses is the level of record keeping that is now required, and how difficult it will be to obtain the data you are meant to keep. MOSS registered businesses are required to collect and keep two pieces of evidence of where each customer normally lives. HMRC have acknowledged that it is very difficult if you use a payment service provider to obtain payment for your digital service, and have suggested the following two-step approach (taken directly from their policy paper):Step 1
When the customer places their order ask them to confirm either:- the EU member state they usually live in
- their billing address
Step 2
When the customer pays for the product using the payment service provider, arrange for that provider to transmit the following two pieces of evidence to you:- the customer’s billing address
- the country code of the customer’s bank or registered credit card
Data protection
Given the above requirements to keep customer records electronically you will need to register as a data controller with the Information Commissioner’s Office (ICO) with an annual cost of £35. You will only have to register with the ICO in the UK.Small business guide to VAT
Managing VAT can be a pain for many small businesses – but it doesn’t have to be! Everything you need to register and submit VAT and staying compliant is right here.
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