Tax experts have welcomed a government move that will prevent thousands of small businesses needing to register for European VAT from having to charge customers UK VAT, provided their relevant turnover remains below the £81,000 threshold.
HM Revenue & Customs (HMRC) has adopted a proposal from the Chartered Institute of Taxation (CIOT) to amend its VAT Mini One Stop Shop (MOSS) scheme so that businesses operating below the VAT threshold can now separate sales to UK customers from sales to other EU customers.
Under EU regulations that came into effect on 1 January, VAT on digital services is now chargeable in the location of the consumer rather than of the provider. This meant sellers of digital products such as e-books and online courses having to register for VAT in up to 27 EU member states unless they use MOSS.
However, to use MOSS in the UK, businesses had to be locally VAT-registered, making their entire turnover subject to VAT and effectively excluding them from the benefit of the UK registration threshold, even where they supplied a minimal amount of digital services to European consumers.
HMRC announced on 10 December that businesses with turnover below the VAT registration threshold would be able to register for MOSS in the UK and maintain the benefit of the VAT threshold for UK supplies.
CIOT tax policy director Patrick Stevens said: “There was vociferous rejection of the initial proposals, particularly from smaller businesses for whom the removal of the UK VAT exemption would have defeated the very point of MOSS, since the amount of VAT they would pay on their domestic turnover would likely have been greater than the cost of the services they would provide in another state.
“In most cases, they would have opted not to apply for MOSS but simply register to pay VAT in the state in which the particular service is being provided. We are happy to see that the Revenue has adopted a common sense approach.”