Do you make electronic supplies?– Reminder of the new MOSS rules

After the change in rules for electronic supplies to non business customers came into effect on 1 January 2015, we have now reached the end of the first quarter under the new rules. There is, however concern that many suppliers of such services have failed to act on the changed requirements and are therefore accounting for VAT incorrectly.

Firstly, let me remind you of the rule change. Prior to the 1 January 2015 when supplies of electronic services were made to consumers in other EU countries the place of supply was considered to be where the supplier belongs, i.e. the UK and therefore UK VAT was charged.

Electronic supplies are considered to be supplies that  involve minimal human involvement, with the supply being made over the internet and includes things like:

  • supplies of music, film and game downloads
  • advertising space on a website
  • supplies of images or text, such as photos, screensavers or e-books
  • supplies of software and software updates
  • online magazines

From 1 January 2015, the place of supply has shifted to where the consumer belongs. This means that a UK supplier will be deemed to be making a supply in any EU country where they have customers of their electronic services.

A supplier making supplies in an EU country where they are not based do not benefit from any VAT registration threshold. This would mean that in any EU country where supplies are deemed to be made, there would be a VAT registration obligation for the supplier.

Clearly it would not be preferable to have multiple VAT registrations across the EU. Therefore the Mini One Stop Shop (MOSS) has been introduced. This allows UK suppliers of such services to register for MOSS in the UK and account for all the VAT due to HMRC, who would in turn then pass these amounts on to the relevant authorities.

The rate of VAT chargeable on the supplies would still need to correspond with the rate of VAT applicable in the EU country of the recipient, so information to confirm the customer’s place of belonging will need to be obtained to allow the correct VAT rate to be applied.

MOSS returns are based on calendar quarters and need to be submitted by the 20 of the month following the period end.

An issue that arose prior to the introduction of the new rules was that to register for MOSS in the UK you would need to be VAT registered in the UK. This would mean that smaller businesses currently trading beneath the UK VAT registration threshold would have the choice of either registering for VAT in the UK, therefore having to charge VAT on their UK supplies, but being able to use MOSS or alternatively, not registering the UK, but not being able to use MOSS.

After HMRC were challenged on the fairness of this point they agreed to a compromise that businesses supplying electronic services under the UK VAT registration threshold could register for VAT in the UK and therefore be able to use MOSS, but would not need to charge VAT on their UK supplies (subject to these supplies remaining under the threshold, which is currently £82,000).

The new rules also are applicable to broadcasting and telecommunications services.

If you believe you are affected by these new rules and are yet to consider a MOSS registration, please get in touch and we can discuss the best approach for you.

David Graham, Assistant VAT Consultant

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