Government clarifies what VAT MOSS ruling will mean for small businesses

HMRC confirms small firms will not be forced to charge UK VAT on domestic sales but will still need to register for “Mini One Stop Shop” from January 1

The government has confirmed that the controversial VAT “Mini One Stop Shop” (VAT MOSS) EU ruling, to be introduced on January 1 2015, will not force sole traders and small businesses to charge UK VAT on domestic sales.

The clarification from HM Revenue and Customs (HMRC) follows several recent lobbying campaigns by organisations and entrepreneurs calling for exemptions to be made for the country’s small firms after issues were raised about the ruling penalising digital businesses selling in Europe.

From January 1, the new EU regulation would have required all UK firms selling digital services and products in Europe, including e-courses, e-books and apps, to register for VAT in every country with VAT on digital products chargeable in the place of purchase rather than the place of supply.

As an alternative to having registering for VAT in each country of sale, small businesses would have to register for VAT MOSS by registering for VAT in the UK, which would then distribute VAT money to the rest of the EU states but make the seller liable for VAT domestically.

After arguments that VAT MOSS would create a ‘VAT MESS’, HMRC has announced that while small businesses below the current VAT registration turnover threshold of £81,000 still have to register for VAT in the UK to use MOSS, they will no longer be forced to charge UK VAT on domestic sales.

In practice, businesses will be able to voluntarily register the cross border element of their business and then use that registration number to register for MOSS.

The “tweak” should help to reduce concerns about the “fairness” of the ruling given that sole traders and small businesses, such as a teenager selling mp3 players online, would have to have followed the same regulations as tech giants such as Amazon and Google.

Although many businesses have stated they are still unhappy with the impending regulation, HMRC is set to produce additional guidance on how a business can register for VAT without having to charge VAT on its UK sales.

The tax body has also clarified that small businesses trading in the EU will not have to register for MOSS by December 31 provided they notify HMRC by the 10th day of the month following the month in which they make their first cross-border supply. For instance, if a business makes a sale to the EU on January 19, it has until February 10 to notify HMRC and register for VAT MOSS.

For more information on what VAT MOSS means for your business, click here .

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