If you are a micro business or small business and you trade with other countries in Europe, then I'm sure you have heard about #VATMOSS.
In short, the rules have changed, so that when you sell something to another EU country you have to pay VAT in that country.
So what could VATMOSS mean for you?
I've been contacted by quite a few people who are concerned about the situation and so I decided to have a meeting with David Gauke MP at the Treasury to put your concerns to him.
Here is a copy of his reply.
Also, if you are effected by this situation then I want to know. Tweet me on @syedkamall
(scroll down to read the whole letter)
VAT MOSS - ACTIONS BY THE UK GOVERNMENT
We met on 8 December to discuss the VAT place of supply rules that come into effect on 1 January 2015 and the impact on our smallest UK businesses. I said Id follow up in writing to outline the key points, including the mitigations agreed during the negotiations and what HMRC are doing to support businesses.
At the outset l would like to re-emphasise the importance of these changes to the UK. By removing the incentive for businesses supplying digital services to locate in, or relocate to, an EU Member State with a lower VAT rate they will create a level playing field for all UK businesses. This will increase UK annual tax revenue by £300 million and protect a further £5 billion per year.
But I also agree that we need to do everything we possibly can to support our smallest businesses.
As you are aware, these changes were essentially negotiated in the EU some years previously. They were part of a much larger VAT package of measures which, taken as a whole, is the most significant reform of the EU VAT system since the introduction of the Single Market. The VAT package was only finally agreed at the ECOFIN Council in December 2007, and adopted on February 2008, after the culmination of lengthy discussions which had extended over a number of years.
During those earlier negotiations the UK had argued strongly for a Cross-border threshold so that the smallest businesses would be outside the system altogether. But there was no support from other Member States or the Commission.
The UK insisted that the changes should, as a minimum, be supported by the one stop shop concept. The UK has continued to insist on that being a key priority for the EU as the dossier moved into the more recent implementation stages. In addition, the UK has continued to be a driving force behind other mitigations which have been finalised during these more recent implementation stages.
In summary, the mitigating measures are;
Two legislative measures:-
1. A Mini One Stop Shop (MOSS) allowing businesses to account for all the VAT due throughout the EU via a single registration in one Member State (HMRC's UK MOSS has been open since October 2014). Although this was agreed in principle back in 2007 and 2008, the Government reaffirmed the importance of this initiative in June 2011 (in the UK response to the EU consultation), and again in May 2012 (within the ECOFIN conclusions on the Commission Communication on the future of VAT)
2. Making digital platform operators (e.g. eBay) accountable for the VAT on digital services, such as apps, sold through their platforms. This was actively promoted by the UK and incorporated as part of a later implementing Regulation, which was then agreed by EU Ministers in October 2013.
Two non-legislative mitigation measures;
1. Member States have also recently agreed a cooperation framework on audit and control by way of draft best practice' Guidelines. This is firmly anchored in underlying EU law. It is a pragmatic and efficient approach to encourage Member States to coordinate activity in order to minimise business (and tax administration) burdens. The idea was put on the table by the UK in 2007, but has only recently been formalised.
2. An EU Web Portal to provide a central hub for information about the relevant rules in all Member States. This came into operation only recently, largely as a result of continued pushing by the UK.
In terms of the things that HMRC are doing to support businesses, they continue to provide guidance, including via channels such as Twitter, to ensure businesses understand all their options. Having also recently met at the offices of Enterprise Nation to hear the concerns of micro businesses, a meeting which l attended to hear those concerns directly, HMRC has just released a Revenue and Customs Brief to provide additional guidance on some key issues raised by microbusinesses. It includes advice on how they can register for VAT in the UK to be eligible for MOSS and still benefit from the UKs VAT registration threshold for sales to UK consumers.
It also points out that to make use of the MOSS VAT accounting simplification scheme for cross-border supplies, a business does not have to register by 31 December, but can instead register in the New Year and have its registration backdated to when it makes its first digital services supply.
This means that businesses under the current VAT registration threshold of E81,000 may register in respect of their cross border sales only. As a result, a business will not have to account for VAT on its supplies to UK customers. It will be required to make quarterly UKVAT returns but this will normally only involve a nil return. One advantage of registering for VAT in this way is that the business will be able to recover any UK VAT it incurs in making cross border supplies – in which case it will simply have to show those figures in the return in order to receive a repayment from HMRC.
This approach, together with other guidance specific to micro businesses, has been publicised in the HMRC Revenue and CustomsBrief which is available on line at GOV UK.
It was clear from the meeting with micro businesses at the offices of Enterprise Nation that some micro businesses were very worried about how the new rules will affect them. I hope that the new guidance will go some way to allaying their fears. Officials had a further meeting this week with Enterprise Nation who were very positive about HMRC efforts to provide support. Officials will continue to engage with UK businesses over the coming weeks.
I hope you find this information helpful
David Gauke MP