New tax regulations called VAT MOSS came in on 1 January and applies to all sales of digital services in the EU.
MOSS stands for Mini One Stop Shop, the solution that the UK government has come up with to help businesses with their new, compex VAT obligations.
Why Do We Need New Regulations?
There is a missing VAT tax bill of 177 Billion Euros, mainly a result of multinationals being registered in countries with low VAT rates. The best example is that of Amazon, who are based in Luxembourg, where the VAT rate is 15%.
Previously, if you were selling a digital service or product from the UK , whether that’s an app or an e-book, to someone in the EU you would simply pay VAT at the UK’s rate, 20%.
The new regulations stipulate that the VAT paid must be the same as the location of the customer. So if you sell an e-book to a customer in Sweden, you must pay VAT at their 25% rate for example.
This obviously makes things quite complicated for sellers who have customers all over the European Union. Which is where the Mini One Stop Shop (MOSS) comes in: all businesses have to do is be VAT registered in their home country and pay their VAT to MOSS who will work out the various amounts owed to each EU country, based on customer data.
Who Will Be Affected?
It is estimated 34,000 small businesses will be affected by the new laws and still more individuals. This is because there is no threshold for compliance, whether you sell three apps a month or thousands you need to make sure you’re paying your VAT correctly.
You can see whether you need to comply with the new regulations by going through a 5-step checklist. Enterprise Nation have come up with a good guide; alternatively, you can visit the HMRC website to find out more.
What Are The Potential Problems?
If you’ve seen anything about VAT MOSS already you’ll likely have noticed that it’s caused quite a bit of controversy.
The main issues seem to come down to the lack of a threshold – that the law should only be for larger businesses – and the need for businesses to keep more data on their customers. Though this might not seem like a particularly big problem, some business owners do not feel comfortable with the implications to privacy.
If you need help navigating the new digital marketplace and working out where you stand, contact Alexander & Co chartered accountants for advice.