HMRC guidance indicates that Brexit will immediately affect UK businesses using VAT MOSS from 1 February, in spite of the transitional period which runs until 31 December. However, industry experts say that guidance is incorrect.
The European Union (Withdrawal Agreement) Act was passed on 23 January 2020, which applies the legal foundation for the UK to leave the EU at 11pm on 31 January.
There should be few immediate changes, as the transition period will keep most UK laws aligned with those of the EU. However, the rights of UK traders to use the HMRC VAT MOSS portal and enjoy the VAT MOSS turnover exemption are in doubt.
HMRC guidance
On 27 January, the advice on Gov.uk was that UK businesses will not be able to use UK’s VAT Mini One Stop Shop (VAT MOSS) for sales of digital services made after 31 January 2020. Industry experts are divided as to whether this advice is correct.
Richard Asquith, vice president of global indirect tax at Avalara, said the gov.uk page is out of date as it was written for a no-deal Brexit position that was due to happen on 31 October 2019. This may be true as the page says it was published on 18 September 2019 and it hasn’t been updated since then.
Recap
The VAT due on digital and broadcasting services sold to non-business customers (B2C) in other EU member states must be charged at the rate applicable where the customer belongs, and paid to the tax authority of that country. VAT MOSS is the online mechanism which allows businesses to report and pay that VAT in one relatively painless exercise once a quarter.
These rules have applied throughout the EU, and for suppliers selling into the EU, since 1 January 2015. VAT MOSS allows the EU countries to work together to collect cross-border VAT, and distribute the tax to the right country.
Tim Myerson, director of iVAT Limited, says “The UK is one of most developed ecommerce markets on the planet by volume. UK consumers are enthusiastic purchasers of digital services from other EU members states and from around the world. A large number of UK businesses also sell digital services into the EU and other countries.”
The trade statistics show that the UK benefits significantly from the VAT MOSS mechanism. The UK received around to €695m in 2018 under the VAT MOSS distribution, which was nearly twice the amount of VAT MOSS tax collected by HMRC to send to other EU member states in that year.
Exemption
The country-specific VAT turnover thresholds do not apply for international B2C digital services. This nil turnover registration threshold meant that micro-businesses were particularly affected by VAT MOSS; they had VAT reporting and payment obligations for VAT MOSS which don’t exist for domestic sales, which are governed by the normal VAT registration threshold.
However, following an extensive campaign by small businesses, an annual VAT MOSS turnover exemption of €10,000 was introduced from 1 January 2019. As long as the business does not breach this level of international B2C sales of digital services in the current year, or previous year, it doesn’t have to report or pay VAT under VAT MOSS.
For UK businesses the VAT MOSS threshold was set at £8,818 per calendar year.
Non-EU
This VAT MOSS de-minimis threshold only applies for businesses located in EU member states. It would therefore follow that once the UK is no longer an EU member state on 1 February 2020, the VAT MOSS threshold will fall away to nil.
This position is supported by the advice on gov.uk which tells businesses that if they make sales of digital services to EU consumers after Brexit they must either:
• register for VAT MOSS in any EU member state; or
• register for VAT in each EU member state where they sell digital
services to consumers
Tim Myerson commented that if this true it would impose a significant burden on the UK’s SME market. There is a danger that businesses will operate outside the law, and probably be unaware that they are doing so.
Non-Union scheme
The gov.uk advice correctly refers business to the non-Union VAT MOSS scheme that suppliers from outside of the EU must use.
The confusion is whether UK businesses must use the non-Union scheme from February 2020 (as stated), or from January 2021, as the transitional period effectively keeps UK businesses in the EU VAT MOSS scheme until 31 December 2020.
It is vital that UK business know where they stand from 1 February 2020, as they cannot register for the non-Union scheme before Brexit but will be required to register by the 10th day of the month following their first sale to an EU customer after Brexit. (1)
(1) Reproduced from Accountingweb