The VAT Mini One Stop Shop (VAT MOSS) service is a way of paying VAT if your business supplies certain digital services to customers in other EU countries. It doesn’t apply to digital services supplied to businesses.
If you use the VAT MOSS service, your business pays VAT based on the prevailing rate in the country where the customer buys your product, not the country where the seller (your business) is based.
VAT MOSS doesn’t affect sales of digital services your business makes to other businesses based abroad.
To save you having to register for EU VAT in every EU Member State where you supply digital services to customers, you may opt to use HMRC’s online service (VAT MOSS).
The only downside is that you must be UK VAT registered to use the VAT MOSS scheme. Therefore, if your turnover is low from EU sales, you might want to think carefully about whether you want to sell in Europe at all, or sell though a different legal structure for your business.
By way of example, if you have £100 worth of digital sales with a customer based in Germany – the German VAT rate is 19%, so £19 is added to the sale. The total invoice would be for £119 and £19 would be added to the VAT MOSS return. HMRC would then pay £19 to the German authorities. There are no UK VAT implications for 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 proceeding to register.
Who is affected by VAT MOSS?
The rules apply to businesses that supply digital services to customers (known as ‘B2C’). The services include broadcasting, telecoms and e-services. The rules apply if you are self-employed, so not just limited companies.
If you supply digital services to businesses (known as ‘B2B’) then VAT MOSS doesn’t apply.
From 1st January 2019 there will be a threshold of 10,000 Euros worth of cross-border sales, below which the VAT MOSS rules will not apply and the sales will be subject to the rules of the supplier’s country.
There are two types of VAT MOSS scheme:
- Union VAT MOSS – for businesses based in the EU, including the UK
- Non-Union VAT MOSS – for businesses based outside of the EU
Union VAT MOSS
To use the Union VAT MOSS scheme in the UK, your business must:
- be based in the UK, or be a non-EU business with a fixed establishment in the UK
- be registered for UK VAT
- supply digital services to consumers 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 in the UK, your business must:
- be based outside of the EU
- 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.
How will Brexit affect VAT MOSS?
Unsurprisingly, we don’t know how VAT MOSS rules will be affected when / if the UK leaves the European Union. As soon as we have some insight, we’ll update this article.
What if I sell through an online shop?
The situation can get a little more complicated if you sell through an online shop. 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 customer. This is likely to be true if, for example, you’re the one processing card payments for your sales. The transactions would be recorded using the VAT MOS 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 to the shop, which they are then selling to the customer. This is likely to be true if they operate the whole sales process. This would be classed as a ‘B2B’ sale, so the rules would not affect you 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 through the VAT MOSS service.
If you’re 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?
You’ll need to complete a UK VAT return each quarter even if you aren’t charging VAT on your UK sales. This means 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.