The VAT Mini One Stop Shop (VAT MOSS) scheme is a way of paying VAT if your UK business provides certain digital services to customers in the EU (known as ‘Business to Customer’ sales or ‘B2C’). The rules apply to limited companies and sole traders registered for VAT in the UK.
Unfortunately, you cannot use the VAT MOSS scheme if you supply digital services to other businesses in the EU (known as ‘Business to Business’ or ‘B2B’). These transactions are reported normally through your quarterly VAT return.
The rules surrounding VAT MOSS are complex and we recommend you seek the advice of a tax specialist before deciding whether the rules apply to your business.
This article provides information published by HMRC for businesses based in the EU and those based in the UK. The UK left the EU on 1st January 2021.
Background to the VAT MOSS scheme
As we mentioned at the beginning, VAT MOSS covers businesses supplying digital services to customers (known as ‘B2C’). The services include broadcasting, telecoms and e-services. The rules apply to sole traders and limited companies.
If you supply digital services to businesses (known as ‘B2B’) then VAT MOSS doesn’t apply.
If your sales of digital services to the EU are less than 10,000 Euros, then you can’t register for the VAT MOSS scheme. Your business will need to follow the VAT rules for the country your business is based in. So a UK company will add 20% to its digital sales and report the amount of VAT using normal VAT arrangements.
Who is affected by VAT MOSS?
There are two types of VAT MOSS scheme:
- Union VAT MOSS – for businesses based in the EU
- Non-Union VAT MOSS – for businesses based outside of the EU (which includes the UK from 1st January 2021)
Union VAT MOSS
To use the Union VAT MOSS scheme, your business must:
- be based in the EU or be a non-EU business with a fixed establishment in the EU
- be registered for VAT
- supply digital services to customers in the EU
If your business turnover is below the UK VAT threshold you still need to register for UK VAT to use the Union VAT MOSS scheme.
Non-Union VAT MOSS
To use the Non-Union VAT MOSS scheme, your business must:
- be based outside of the EU (includes the UK from 1 January 2021)
- have no fixed or business establishments in the EU
- supply digital services to consumers in the EU.
Crunch do not offer advice or services to businesses that are not UK based or individuals who are not UK Tax residents.
If you use the VAT MOSS scheme and sell digital services to customers, your business pays VAT based on the prevailing rate in the EU country where the customer pays for your digital services, not the country where the seller (your business) is based.
UK businesses selling digital services to the EU must therefore use the Non-Union VAT MOSS scheme. HMRC’s online service provides guidance on how to apply for the Union VAT MOSS and the Non-Union VAT MOSS schemes.
By way of example, if you provide £100 worth of digital services to a customer based in Germany, the German VAT rate is 19%. You must add £19 to your sales invoice. The total invoice amount is £119 and £19 would be included in the Non-Union VAT MOSS return. HMRC would then pay £19 to the German tax authorities. There are no UK VAT implications arising from the sale.
While VAT MOSS is a voluntary scheme, there are strict conditions covering its use – so please take the advice of an accountant before you decide to register, if you’re a Crunch client please speak to us first. Although we do not offer advice on VAT MOSS we are able to refer you to our partners for specialist advice.
What if I am a UK business and sell services through an online shop?
The situation can get a little more complicated if you sell digital services through an online shop such as Amazon, eBay, etc. You’ll be responsible for paying the prevailing VAT rate in the EU country of sale if the online shop is seen to be ‘acting as an agent’, meaning you are selling directly to the consumer. This is likely to be true if, for example, your business processes card payments for its sales. From 1st January 2021, the transactions must be recorded using the Non-Union VAT MOSS service.
However, the online shop will be responsible for paying the VAT if they’re seen to be ‘acting in their own name’, meaning you are selling your services directly to the online shop, which in turn, sells directly to the consumer. This is likely to be true if the online shop operates the whole sales process. Your sale to the online shop will be classed as a Business to Business (or ‘B2B)’ sale, so the VAT MOSS rules would not apply and the sale would be classed as outside the scope of VAT.
You should check with the online shop you’re working with to define the relationship, as it’s sometimes hard to tell.
Can I reclaim VAT on expenses and purchases?
It depends. As you won’t be charging VAT on your UK sales, any VAT you reclaim on your business expenses and purchases must either be wholly attributable to your cross-border EU sales, or split according to the proportion which is attributable to EU sales.
For example, if you buy a computer for business use only and use it to generate sales, of which 60% are UK sales and 40% cross-border EU sales, you’ll only be able to recover 40% of the VAT charged on the purchase of the computer. If you are on the standard scheme of VAT in the UK you may be able to include the residual 60% amount on a UK VAT return. However, HMRC’s rules are complex, and if you are on a Flat Rate VAT scheme, there are more rules to follow. So please contact your accountant before attempting to reclaim any VAT.
Do I still need to complete UK VAT returns?
If you want to use the non-Union VAT MOSS scheme, you’ll need to register for VAT in the UK even if you’re not at the UK VAT threshold. This means you’ll need to complete a UK VAT return each quarter even if you aren’t charging VAT on your UK sales. When creating sales invoices the VAT will be ‘out of the scope of VAT’.
Unless you wish to reclaim VAT on business expenses or purchases in relation to your EU sales, you would have to enter all expenses as zeros on your VAT return.
Need more help with VAT MOSS?
VAT MOSS data collection and reporting is a complex and specialist area, we recommend you speak to an accountant to find out what your options are regarding VAT MOSS.