TT202: Place of Supply VAT Changes

May 28, 2014

1 January 2015 will mark a significant change to the way EU based businesses account for VAT when supplying telecommunications, broadcasting and e-services (“affected services”) to private consumers located in another EU Member state.

Changes to the place of supply rules and the introduction of MOSS

Currently, the affected services are taxed where the business supplier is established. This has resulted in companies setting up in low VAT rate EU Member states.

On 1 January 2015 the following changes will affect businesses supplying affected services to private consumers in two ways:

1. Businesses located in one EU Member state, making supplies of affected services to domestic customers in another EU Member State, will have VAT appropriately accounted for and taxed in the member state in which the consumer is located (i.e. VAT charged at the member state’s rate where the consumption takes place and not where the business supplier is established).

2. Secondly the creation of a VAT Mini One Stop Shop (MOSS). HMRC will set up an online service which will allow businesses the option of submitting a single quarterly return for the VAT due in respect of the affected supplies to private consumers in other Member states (at the appropriate rate of tax in each state). Payment of the VAT liabilities will be made through the MOSS system and then passed on by HMRC to the relevant EU Member state.

Businesses selling affected services to private consumers in other EU Member states will have the option of either:

(a) Registering and declaring VAT in each Member state (local VAT registrations) in which they have domestic customers. Hence they would be paying VAT and submitting returns in accordance with the individual Member state’s tax legislation. Given that there are 28 EU Member States, this process could prove to be a rather time consuming and complex task for some organisations.

(b) The alternative is to register with HMRC to use the MOSS system.

As private individuals will be charged VAT where they consume the product, the trend for companies to set up in low VAT rate member states will be less attractive. This will help harmonise tax competition between countries in the EU.

Businesses choosing the MOSS system will have to apply it to all affected sales to consumers in other EU Member states. You will not be allowed to “cherry pick” between non UK other EU Member states on the method you prefer to use.

The MOSS system will only be used to declare the output VAT (i.e. VAT on the affected services to consumers in other EU member states). Input VAT (i.e. VAT charged by suppliers) will be recovered from HMRC as before.

Businesses will be able to register for MOSS from 1 October 2014 and the online service will be available to use from 1 January 2015.

An example of this change could be that you have a UK VAT registered business selling e-books and e-publications online, with private consumers located in the UK, Spain and Ireland. The e-service sales to private UK customers would continue to be charged with UK VAT and VAT returns filed to HMRC as before.

The business would have to charge Spanish and Irish VAT on the e-service sales consumed by private individuals in Spain and Ireland respectively. The business could either opt to register and account for VAT with the Spanish and Irish tax authorities directly or alternatively register for MOSS with HMRC in the UK. The MOSS registration would alleviate the need to register for VAT in Spain and Ireland directly allowing the business to submit a single quarterly return to HMRC (declaring the Irish and Spanish VAT on one return).

Plan ahead – NOW !

Businesses affected by these rule changes will need to consider making suitable plans for the 1 January 2015 deadline now. They will need to ensure internal accounting and data collection systems are able to identify where all the affected services are consumed in the EU and invoicing systems are able to correctly calculate VAT at the appropriate rate of the EU Member state.

With the new regulation, all affected services sales from UK businesses to consumers in non UK EU member states will effectively incur some form of VAT. Small businesses currently under the UK VAT threshold may need to account for VAT for the first time on sales of affected services to private consumers located in other EU Member states.

Should you wish to discuss the impact of the new VAT changes then your Barnes Roffe contact partner will be happy to discuss your particular situation with you.

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