The new VAT regulations

Earlier this month I emailed Vince Cable, expressing concerns on how the new VAT regulations will affect small concerns such as The Alchemy Press, my imprint. Yesterday I received a reply. In the interest of open government, here it is:

Thank you for your email of 6th January 2015 to Vince Cable.  Your letter has been passed to HMRC as this Department is responsible for the administration of VAT and I have been asked to reply.

You are concerned about the changes to the VAT place of supply rules that came into force on 1 Jan 2015.

It may be helpful if I provide some background. Previously, intra-EU supplies of digital services (broadcasting, telecoms and electronic services) to non-business customers across the EU were subject to VAT in the Member State where the supplier belongs. As announced at the 2013 Budget, from 1 January 2015 these services are taxed in the Member State in which the consumer is located. This change is important to the UK. It removes a distortion of competition which unfairly favours businesses that locate to a Member State with a lower rate of VAT than the UK. It therefore creates a level playing field for all UK businesses and helps protect UK revenue. UK consumers of these services will pay UK VAT no matter where in the EU the supplier belongs. This change also affects UK businesses which supply non-business customers in other Member States, as local VAT is due on those sales from 1 January 2015.

HMRC is very mindful of the administrative burdens the tax system can impose on businesses but the UK cannot unilaterally introduce a cross-border threshold. That would need a proposal from the EU Commission and unanimous agreement from all Member States. Although the UK continues to make the case in Europe for some form of cross-border threshold, so that the smallest businesses would be outside the system altogether, some other Member States (whose revenue would be affected) and the Commission do not yet support such an approach.

The UK therefore continues to be a driving force behind other legislative and non-legislative measures to reduce the impacts. These include:

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 for some time. It gives UK businesses the option of registering in just the UK and accounting for VAT due in other Member States, using a single return and making a single payment to HMRC covering all the VAT due.

 

  1. Making digital platform operators (e.g. Google Play) accountable for the VAT on digital services, such as apps, sold through their platforms. This means digital service platform providers are responsible for accounting for the VAT on supplies of digital services sold through their platform. It relieves digital services developers – that only trade through such sites – from the burden of administering this change. Small businesses selling through a digital platform or marketplace will not have to register for VAT in other Member States, or consider the MOSS option. Without this arrangement a much larger number of businesses would be impacted.

 

Two non-legislative 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.

 

  1. An EU Web Portal to provide information about the relevant rules in all Member States, including rules on VAT rates and invoicing, available to all businesses across the EU, in a single place. This came into operation recently and is available at: http://ec.europa.eu/taxation_customs/taxation/vat/how_vat_works/telecom/index_en.htm#national_rules.

 

We are doing as much as we can to practically support UK businesses. We are providing guidance, including via channels such as Twitter, to ensure businesses understand all their options. We have also provided additional guidance on some key issues raised by smaller UK businesses, as it is clear that they are worried about how these rules will affect them.

The additional guidance includes advice on how small businesses can register for VAT in the UK to be eligible for MOSS and still benefit from the UK’s VAT registration threshold for sales to UK consumers, and advice on using payment service provider information. Until 30 June 2015, UK micro-businesses that are below the current UK VAT registration threshold, and who register for MOSS may base their ‘customer location’ VAT taxation and accounting decisions on the country information provided to them by their payment service provider. This means they do not need to request further information from their customers. This will give micro-businesses additional time to adapt their websites to meet the new data collection requirements. HMRC have received assurances that the main payment providers will supply businesses with the necessary information.

The guidance for MOSS can be found here: https://www.gov.uk/register-and-use-the-vat-mini-one-stop-shop and the guidance relating to the evidence needed can be found here: https://www.gov.uk/government/publications/vat-supplying-digital-services-to-private-consumers/vat-businesses-supplying-digital-services-to-private-consumers

If you have any further queries about the 1 January 2015 changes, you may wish to contact HMRC direct at: vat2015.contact@hmrc.gsi.gov.uk.

I hope you find this reply helpful. If you need to contact us again, please quote the reference number at the top of this letter.

Yours sincerely

Jonathan Heath

 

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