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UK victory in 2015 electronic services VAT MOSS registrations?

  • Dec 1, 2014 | Richard Asquith

UK victory in 2015 electronic services VAT MOSS registrations?

The UK’s HMRC appears to have given micro-businesses an important VAT registration concession in the lead up to the new 2015 rules on B2C EU VAT on electronic services.

2015 digital services VAT changes

Under the 2015 electronic, broadcasting and telecoms reforms, EU businesses providing electronic services (e-books, software, games, apps etc.) would have to charge and collect at the VAT rate of the country of residency of their consumers. This would have meant VAT registering in each country to file VAT returns. However, the EU has authorised tax authorities in each country to instead create online portals, Mini One-Stop-Shop MOSS, where national businesses can declare and pay foreign VAT in a single, quarterly return.

UK voluntary VAT registration on MOSS

However, this creates a huge VAT compliance burden in the UK. Since the UK has a relatively high VAT registration threshold, £81,000 per annum, but most other EU countries are €25,000 or below, the new rules would require UK non-VAT registered business to register for the first time in order to gain entry to the MOSS portal and report their EU turnover and VAT.

Aside from the additional VAT compliance burden, this would also mean such businesses would have to charge 20% VAT on their UK sales for the first time. This would represent a big rise in prices since their customers are consumers who could not recover the VAT.

UK voluntary registration for EU sales only - fraud risks?

In the past few days, HMRC has offered a clarification. It will allow UK non-registered businesses to voluntarily register for VAT and MOSS, but only charge VAT on the cross-border EU element of their digital sales. Any ongoing UK domestic turnover will still be at zero VAT until the business passes the UK threshold on its UK sales. This will not be regarded as ‘revenue splitting’, the term used to describe the practise of artificially splitting revenue to remain below the VAT registration threshold. This is based on the fact that the division being allowed for was not a split of UK income subject to UK VAT.  Instead, it is a 'separation' of the UK income from its EU cross border income.

However, HMRC has still not provided detailed guidance on how this could work.  There could also be a major risk of such a proposal opening up new VAT fraud possibilities.  There has been a major problems with criminal gangs using features in the EU VAT system to perpetrate huge missing trader fraud.  The may now be able to exploit this new MOSS measure to gain new VAT numbers with limited background checks.

VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is the former VP Global Indirect Tax at Avalara