If you sold digital services to customers in the EU, you might remember VAT MOSS, the Mini One Stop Shop. It was a scheme that let UK businesses report and pay VAT on B2C (business to consumer) digital services through a single portal rather than registering in every EU country.

VAT MOSS only applied to digital services. It did not cover physical goods or sales to other businesses (B2B).

In July 2021, VAT MOSS was replaced by OSS (One Stop Shop) and IOSS (Import One Stop Shop). The change was designed to simplify VAT reporting and expand the types of sales covered, making it easier for businesses selling to EU consumers.

What is VAT OSS?

The One Stop Shop (OSS) is essentially the new version of VAT MOSS for EU B2C sales. It allows UK businesses to report and pay VAT on a wider range of cross-border sales via a single online portal.

What does OSS cover?

It covers digital services just like VAT MOSS used to cover, but also distance sales of goods to EU customers and certain other cross-border services.

How OSS works for UK businesses

To use VAT OSS, businesses need to:

1. Register via the non-EU OSS scheme.
2. Report all qualifying B2C sales on a quarterly return.
3. Pay VAT to the EU countries where the customers are located.

OSS, just like VAT MOSS, removes the need for separate VAT registrations in each EU country. This is a real time-saver if you sell to multiple markets. 

What is VAT IOSS?

The Import One Stop Shop (IOSS) is for low-value goods imported from outside the EU to EU consumers, where each sale is under €150.

• VAT is collected at the point of sale.
• A monthly IOSS return is submitted.
• Customers should not pay extra VAT or customs fees when the goods arrive.

UK businesses generally need an EU intermediary to register for IOSS unless they have an EU establishment.

Selling through marketplaces

If you sell via platforms like Amazon or eBay, who accounts for VAT depends on how the marketplace operates:

• Marketplace as agent: you are responsible for VAT using OSS or IOSS
• Marketplace acting in its own name: the marketplace handles VAT; your sale to them is treated as B2B

It’s important to check how your marketplace classifies your sales, as this affects which scheme applies.

What about VAT on expenses?

If you reclaim VAT on business purchases, only include the proportion that relates to EU sales.

Example 1:

If 40% of your sales are EU B2C and 60% are UK, you can only reclaim 40% of VAT on shared purchases via EU VAT schemes. The remainder may be claimed in your UK VAT return if eligible. 

HMRC rules can be complex, so it’s best to get professional advice from a qualified accountant (like Crunch!). They’ll be able to talk you through the best VAT schemes available for you to use.

Example 2:

You buy a software subscription for £500 + £100 VAT, used for both UK and EU sales. If 25% of your total sales are to EU consumers and 75% are UK:

• You can reclaim £25 of the VAT (£100 × 25%) via the EU VAT scheme.
• The remaining £75 of VAT may be claimed on your UK VAT return if eligible.

Always check with an accountant, as HMRC rules on partial VAT recovery can be tricky.

UK VAT returns

Even if you report EU sales via OSS or IOSS, you still need to submit UK VAT returns if you are VAT-registered in the UK. 

EU sales are treated as “out of scope” for UK VAT, which means you do not charge UK VAT on them, but your UK VAT obligations still apply to domestic sales and other taxable transactions.

Your UK VAT return will show:

• UK sales: VAT charged at the standard, reduced, or zero rate as appropriate.
• EU sales via OSS/IOSS: Reported as out of scope (no UK VAT).
• Expenses: You may reclaim VAT on purchases that relate to UK sales, and the EU portion only through OSS/IOSS schemes.

Submitting UK VAT returns on time is important to avoid penalties. Even if the bulk of your sales are EU B2C, HMRC expects UK VAT returns to be completed accurately and on schedule.

Tip: If you sell both in the UK and the EU, it can be useful to keep separate records of EU and UK sales and expenses. This makes it easier to calculate the correct VAT to reclaim and ensures your VAT returns are accurate.

Staying on top of VAT

VAT MOSS might be a thing of the past, but understanding your current obligations is key. For UK businesses selling to EU consumers, OSS and IOSS are the schemes to know. OSS covers digital services and distance sales of goods, while IOSS handles low-value imported items, letting you collect VAT at the point of sale without adding extra costs for customers.

Keeping clear records of your UK and EU sales, and splitting VAT on expenses appropriately, will make compliance simpler. Getting professional advice when needed will help you stay on top of your obligations and give you peace of mind.

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