HM Revenue and Customs Brief 46/14 - Changes effecting VAT Mini One Stop Shop
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Purpose of this brief
This brief provides additional guidance to UK micro and small
businesses who supply digital services to non-business customers in
other EU member states about:
- how to comply with the new VAT rules for digital services
that come into force on 1 January 2015
- how to register for HM Revenue and Customs (HMRC) VAT Mini
One Stop Shop (MOSS)
and still benefit from the UK’s VAT registration threshold for sales to
Who needs to read this?
UK businesses that make cross-border Business to Consumer (B2C) supplies of
digital services to customers in other EU member states, particularly
micro and small businesses.
If you are a UK business and:
- are unsure whether the services you supply are ‘digital
services’ covered by the new rules please read section 2
- are currently below the UK VAT registration threshold and
want to register for MOSS
to account for the VAT on your cross-border supplies please read
- you want to understand the timescales that apply for
registering for MOSS,
please read section 4
- you want to understand what records you need to keep,
please read section 5
Section 1: background
What is happening?
On 1 January 2015 the VAT rules for cross-border B2C supplies of
‘digital services’ (i.e. broadcasting, telecoms and e-services) will
change. From that date, VAT must be accounted for in the member state
where the customer normally lives, rather than where the supplier of
the service is established. This means that sellers of digital services
will no longer be able to unfairly undercut businesses in the UK by
locating themselves in another EU member state with a lower VAT rate.
You can find out more about these changes at VAT on digital services in
Section 2: digital
What supplies are covered by the
The changes apply to digital services. These are broadcasting,
telecommunications and e-services that are electronically supplied.
It is unlikely that any small businesses supply broadcasting
or telecommunications, but many will supply e-services to non-business
customers in other EU member states and they will have to charge and
account for VAT on their supplies.
affected by the change
Using the internet, or some electronic means of communication,
just to communicate or facilitate trading does not necessarily mean
that you are supplying e-services.
Using the internet for the following does not count:
- supplies of goods, where the ordering and processing are
- supplies of physical books, newsletters, newspapers or
- services by lawyers and financial consultants who advise
clients through e-mail
- booking services for entertainment events, hotel
accommodation or car hire
- educational or professional courses, where the content is
delivered by a teacher over the internet or an electronic network
- offline physical repair services of computer equipment
- advertising services in newspapers, on posters or on
which are covered by the change in rules
The 1 January 2015 rule change only applies to e-services that
are electronically supplied.
An e-service includes things like:
- images or text, such as photos, screensavers, e-books and
other digitised documents e.g. pdf files
- music, films and games, including games of chance and
gambling games, and of programmes on demand
- on-line magazines
- website supply or web hosting services
- distance maintenance of programmes and equipment
- supplies of software and software updates
- advertising space on a website
meant by electronically supplied?
This covers e-services which are automatically delivered over
the internet, or an electronic network, where there is minimal or no
human intervention. In practice, this means:
Where the sale of the digital content is entirely automatic -
for eg a customer clicks the ‘buy now’ button on a website and the:
- content downloads onto their device
- customer receives an automated e-mail containing the content
Where the sale of the digital content is essentially
automatic, and the small amount of manual process involved does not
change the nature of the supply from an e-service. Examples of sales
that are essentially automatic are where a customer clicks a “buy now”
button on the website and the seller receives a notification and clicks
a button, which :
- automatically sends an e-mail containing the digital
content to the customer
- produces an e-mail pre-populated with the customer’s
details followed by the seller attaching the digital content and
All e-services that are electronically supplied in the ways
outlined above are categorised as ‘digital services’ and are covered by
the rule change.
of electronic supplies and whether or not they are ‘digital services’
||Covered by the new rules
|Pdf document manually e-mailed by seller
|Pdf document automatically e-mailed by seller’s system
|Pdf document automatically downloaded from site
|Stock photographs available for automatic download
|On-line course consisting of pre-recorded videos and
|On-line course consisting of pre-recorded videos and
downloadable pdfs plus support from a live tutor
|Individually commissioned content sent in digital form
e.g. photographs, reports, medical results
|Link to online content or download sent by manual e-mail
3: Registration for MOSS
by businesses currently below the UK VAT Registration threshold
If you supply digital services to a
customer in another EU member state, you must account for VAT to the
tax authorities in that member state and at that member state’s VAT
So you do not have to register for VAT in every member state
where you have customers, HMRC
has developed a MOSS
service for UK-based suppliers of digital services. You can find
guidance on MOSS
for and use the VAT Mini One Stop Shop.
Although it is a condition of registering for the MOSS that you must
have a UK VAT registration number to identify the business, you will
not lose your UK VAT registration threshold.
Who will this affect?
These simplified VAT registration arrangements will only be
available to you if:
- you are a UK-based supplier of digital services
- you wish to use the VAT MOSS
- your UK taxable turnover is below the UK-VAT registration
threshold (currently £81,000)
How will this work?
If you make taxable supplies of digital services to customers
in other EU member states, and your UK taxable turnover is below the UK
VAT registration threshold, you may use the VAT MOSS to account for
the VAT due in other EU member states but you do not need to account
for and pay VAT on sales to your UK customers.
In these circumstances, you must:
- apply for UK VAT registration (see below)
- restrict any VAT refund claims you submit to HMRC to amounts
directly attributable to your cross-border EU sales activities on which
you will be accounting for VAT through MOSS (see Reclaiming
VAT on your expenses and purchases below)
Applying for VAT
You must apply for UK VAT
When you are prompted to search for the correct business
activity, you should select:
- search by business activity and then enter digital services
in the following text box
- you will then be directed to select the business activity
entitled supplies of digital services (below UK VAT threshold) under MOSS arrangements
Only follow this procedure:
- if you supply digital services to customers in other EU
- you wish to use the MOSS
to account for VAT on those supplies
- your UK taxable turnover is below the VAT threshold
If these conditions do not apply, you should choose the
Business Activity that best describes your business.
Following this process will ensure that HMRC can deal
with your VAT registration application quickly.
VAT on your expenses and purchases
As you will not be charging VAT on your UK sales, any VAT you
reclaim on your business expenses and purchases (see completing VAT
returns below) must be either wholly attributable to your cross-border
digital service supplies accounted for through MOSS, or only that
proportion which is attributable to those sales.
For example, you might purchase a computer which you use to
make all of your sales. If 60% of your sales are UK sales, and 40% of
your sales are to customers in other EU member states, you would be
able to recover 40% of the VAT charged on the purchase of the computer.
Please see further guidance on Reclaiming VAT.
You may also reclaim VAT on any business expenses incurred in
other EU member states, provided these are directly related to your
cross-border sales of digital services. To do this, you will need to
complete a cross-border VAT refund application. There is guidance at VAT:
refunds for UK businesses buying from other EU countries.
Completing VAT returns
UK VAT return
You will need to complete a UK VAT return each quarter even if
you are not charging VAT on your UK sales.
Unless you wish to reclaim VAT on business expenses or
purchases in relation to your EU sales, you should enter ‘0’ in every
box on the return. If you do wish to reclaim VAT in relation to EU
sales, you should complete boxes 4, 5 and 7.
You can find further guidance on completing the UK VAT return
VAT MOSS Return
You must declare any supplies of digital services to EU
customers on the VAT MOSS
return. You can view the guidance at Register
for and use the VAT Mini One Stop Shop.
return periods are calendar quarters (e.g. the first return period runs
from 1 January to 31 March). Provided - when you registered for VAT –
you selected the Business Activity entitled Supplies of digital
services (below UK VAT threshold) under MOSS arrangements, HMRC will ensure
that your UK VAT return period is aligned with the VAT MOSS return period,
so you can complete both the UK return and the MOSS return at the
if my UK turnover exceeds the VAT registration threshold?
It is important that you monitor your UK taxable turnover. If
you exceed the VAT registration threshold (currently £81,000), you will
need to start accounting for VAT on UK sales. There is information
about how to calculate taxable turnover at Calculate
VAT taxable turnover.
If you do not start to account for UK VAT at the right time, HMRC may assess
any additional tax due.
registration and use in 2015
registration in 2015
You can register for MOSS
now, as this HMRC
service is open and ready to use. You don’t have to do it by 31
December 2014. Instead, you can wait until you sell your first digital
service cross-border before applying to register. From 1 January,
provided you notify HMRC
and submit your VAT MOSS
registration application by the 10th day of the month following your
first digital service sale, the registration will be back-dated to the
date of the first cross-border digital services sale. For example, if
you sell your first cross-border digital service on 8 January 2015, you
have until 10 February 2015 to submit your MOSS registration
application to HMRC.
states’ VAT requirements
UK businesses registered for MOSS can find
detailed information about the VAT requirements in every EU state,
including the VAT rates and VAT invoicing requirements on the European
Record keeping requirements
Collecting and storing information
about customer location
registered businesses are required to collect and to keep in their
records two pieces of evidence of where each customer normally lives.
This helps demonstrate, if asked by the tax authorities, that the
business has charged the correct rate of VAT to the customer. For many
micro and small businesses this requirement can sometimes present a
challenge. So, if you use a payment service provider to obtain payment
for your digital service, HMRC
suggests the following two step approach:
When the customer places their order ask them to confirm
- the EU member state they usually live in
- their billing address
When the customer pays for the product using the payment
service provider, arrange for that provider to transmit the following
two pieces of evidence to you:
- the customer’s billing address
- the country code of the customer’s bank or registered
For confidentiality the payment service provider can remove
the house number and street name from the billing address.
If the information on the EU member state where the customer
is normally resident tallies, that will be sufficient to define the
customer’s location and you can record the details in your accounting
records. However, if the information does not tally, you do not need to
cancel the sale, but you must contact the customer and ask them to
reconcile the discrepancy between the two sources of information.
What about Data
As you have to keep customer records electronically you will
need to register as a data controller with the Information
Commissioner’s Office (ICO),
if you are not already registered. The current cost is £35 per year.
The requirement to register is based on your place of business, and not
the location of your customers; so you (as a UK business) will only
have to register with the ICO
in the UK, and not with the equivalent registrar in any other member
Section 6: HMRC guidance
is currently reviewing all its 2015 and MOSS guidance and
all the material in this Revenue and Customs brief will be incorporated
in that revised guidance.
About the Author
© Crown Copyright 2014.
A licence is needed to reproduce this article and has been republished
for educational / informational purposes only. Article reproduced by
permission of HM Revenue & Customs.
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Article Published/Sorted/Amended on Scopulus 2014-12-17 09:00:28 in Tax Articles