Revenue and Customs Brief 46/14 has introduced a welcome VAT relief to the VAT accounting and payment requirements for micro businesses affected by the place of supply rules in relation to digital supplies.
New place of supply rules require businesses from 1 January 2015 to account for VAT on their supplies of digital downloads in their private customers’ member states. This is a deviation from the current rules which, until 31 December 2014, require digital supplies to be accounted for in the member state of belonging of the supplier.
There are no VAT thresholds when selling to private individuals in other member states, so the supply of a single download for £1 or 1 Euro will be subject to VAT in the customers’ member states.
Register for the MOSS in the UK and handle all EC affairs centrally (the UK).
It is unlikely that a micro business will be able to handle the administrative burdens of registering and accounting for VAT in different locations, but use of the MOSS requires businesses to be taxable persons and VAT registered in the UK.
While VAT registration was open to any micro business, its effect is to result in all taxable supplies in the UK being subject to VAT in the UK, effectively making supplies by micro businesses uncompetitive.
The rule change announced on 10 December in essence allows micro businesses selling digital services to VAT register, split their business between UK supplies and other EC supplies and only account for VAT on their other EC supplies. Naturally this will only apply to digital suppliers while other businesses that have split their businesses and not accounted for VAT will still be subject to the disaggregation rules!
Businesses should make sure they obtain the required customer location information and account for the VAT rate applicable in the customer’s member state.
Input tax claims should also be considered accordingly.
For further information regarding the VAT rules on MOSS or electronic services, please contact the TaxDesk on 0845 4900 509 and ask for Vaughn Chown.