Businesses providing digital services in the EU now have to pay VAT where customers live. It means some small firms that are currently below the VAT threshold in the UK may have to register for VAT in order to be able to easily comply with the new regulation.
From 1 January 2015 VAT became payable in the member state of consumption. A business can now choose to register in each member state where it has customers, or register for a new arrangement known as the Mini One Stop Shop (MOSS) provided by HMRC.
MOSS allows firms to complete just one VAT return and make one payment every quarter, to cover all their EU digital sales to private consumers.
However, to use MOSS a business must be VAT registered in the UK. Now HMRC has announced that small businesses affected by the change will be able to register for VAT in the UK even if they are below the £81,000 turnover threshold.
However, they will not need to charge VAT on any sales to UK customers and they won’t be able to account for any VAT on UK sales until the business exceeds the threshold. VAT recovered by the business will only be calculated based on MOSS supplies.
According to VAT expert Julie Green of CCH, it means micro-businesses can rest assured that they will get the same one-stop service from HMRC as other businesses.
MOSS enables suppliers to submit a single electronic VAT return to HMRC showing the VAT due at the standard and reduced rates in each country.
These new rules apply to those supplying digital services directly to consumers such as apps, music and photographs.
CCH says that suppliers selling through online portals and marketplaces will need to determine whether they or the platform operator is making the supply to the customer.
Sally Beggs, deputy director, Indirect Tax at HMRC, said: “We recognise this is a big change for businesses in general, and particularly for many micro-businesses. We have provided the business community with a lot of help and guidance and we will continue to support them, as well as monitor the impact of the changes.”