HM Revenue and Customs (“HMRC”) have recently responded to questions posed by small businesses about the imminent changes in rules for B2C supplies of electronically supplied services (“ESS”).
The response has been necessary because of worries raised by small businesses about a potential conflict between using the Mini-One-Stop-Shop (MOSS) – which simplifies the submission of VAT returns for supplies under the new rules – and their UK VAT registration status.
By way of a recap, the new rules come into effect on 1 January 2015 and will see the place of supply for B2C ESS shift from where the supplier belongs to where the customer resides. This means that suppliers will now have to potentially account for VAT in 28 different EU Member States – and because there will be no registration thresholds attached to these supplies, making one supply in, say, France will create a requirement to account for French VAT.
To help businesses account for this VAT, HMRC have opened MOSS. This allows businesses to account for all the VAT due on supplies impacted by the new rules across the EU in one place. HMRC will collect payment of that VAT from the businesses and distribute it to the correct tax authority in due course. Using MOSS will allow businesses to avoid having to register for VAT in each individual EU Member State where it makes a supply, which would be administratively burdensome.
Unfortunately, to use MOSS a business must be registered for VAT. This creates a stumbling block for UK businesses who are currently underneath the registration threshold as to use MOSS, they need to register for VAT and hence start accounting for UK VAT on their supplies. This is disadvantageous because they lose an element of price competitiveness by needing to factor VAT into their prices and they will also incur additional costs in order to submit and complete VAT returns.
HMRC’s response to this issue has been to confirm that if a UK business not currently registered for VAT wants to use MOSS, it can do so as long as it can differentiate between its UK and EU supplies. Detailed guidance on the mechanics of doing this are yet to be released but at the time of writing it appears that businesses will be allowed to register for VAT and use MOSS whilst at the same time not having to account for UK VAT on supplies to UK customers (if the value of those supplies are under the registration threshold).
HMRC’s response… if a UK business not currently registered for VAT wants to use MOSS, it can do so as long as it can differentiate between its UK and EU supplies.
On the basis of what we have heard to date, this appears to be a good result for small businesses but the detail will need to be reviewed before the full benefits can be analysed. Once guidance is released by HMRC, we will update this blog and comment on what needs to be done to structure and enjoy this advantage.