With Brexit, selling products and services has become more difficult, including online. There are more admin tasks involved and paying taxes has become a more complex affair because of this as well.
As your contractor accountants, we like to stay on top of the latest news, and Brexit (and the changes it brought) still remains a topical issue for so many self-employed people in the UK.
So, in this article, we’re taking a closer look at how businesses can continue selling digital services to the EU while paying the correct amount of tax and VAT.
What is VAT MOSS?
The VAT Mini One Stop Shop (VAT MOSS) was set up to help people pay VAT if they provided digital services to clients in the European Union, whether they were a sole trader or a limited company.
The scheme meant you could register for VAT in one EU country (prior to Brexit, this could have been the UK) complete a return and pay the VAT due as per the VAT MOSS return, and this would be dealt with by the relevant authorities in that country. The alternative would be to register for VAT in each EU country that you provide digital supplies to.
According to the UK government, digital services are defined as:
Radio and TV broadcasting
Telecommunications (like phone services and voice mail)
Electronically supplied services (such as ebooks, online magazines and software)
And What About Non-Union VAT MOSS?
Things are slightly different now that the UK has left the European Union. As a UK business selling digital services to EU clients, you can no longer use the VAT MOSS scheme as you could before. Instead, you get the option to register for the non-union VAT MOSS scheme, which is only available for countries:
Outside the EU
With no fixed establishments in the EU
That supply digital services to customers in the EU
If you want to use his non-union scheme, you still need to choose an EU country to register for it. This is where you’ll submit returns and pay tax to.
You’ll have to record the total sales made and VAT collected in each country, as well as the rate of VAT that applies. Different countries have different rates, so this is something to keep in mind if you’re selling digital services to EU consumers. If you sell something to a person in Germany, for instance, you’ll pay 19% VAT instead of 20%, which is the UK rate. The same goes if you sell to someone in Portugal, where the rate is 23%, so you’d be paying more VAT. Accounting software such as FreeAgent can assist with recording the correct VAT rate.
You have a date to register for the scheme as well. You must do this until the 10th day of the month after the sales. For example, if you’ve made sales in March, you have until the 10th of April to register. It’s also important to note that the MOSS scheme is only available for businesses that sell to consumers directly. So, if you’re a B2B company, you’re unable to register for this option.
And if you use an online marketplace to sell your digital services – for example, Amazon allows you to sell ebooks – in many cases it’s their responsibility to account for VAT. However, you should check your agreement with them or if unsure contact the platform directly.
You’ll want to consider the amount of money you make from your sales as well. There was an annual threshold of £8,818 in place for cross borders sales of digital services, but this no longer applies. You must pay EU VAT on all supplies of digital services to EU consumers and the place of supply refers to where the client is located.
As VAT accountants, we know this can be a complex matter, so don’t hesitate to speak to us if you’d like to know more about it.
Transitioning to the Non-Union Scheme
Many businesses had already signed up for the VAT MOSS scheme and had been using it for a while before Brexit happened. If this is also your case, what should you do?
The government is not shutting off the MOSS scheme in its entirety. While people are unable to register any more, those who already were before December 31, 2020 can still use it to sort out their VAT. You can actually amend your returns until January 20, 2022 and update your details until December 31, 2024. You can view your documents as well.
If you want to use the non-union scheme, you must register for VAT in the UK, even if you haven’t reached the £85,000 threshold. You have to submit a VAT return quarterly as well.
VAT on Goods Also Changed
It wasn’t just digital services that were impacted by the UK’s exit from the EU. VAT rules are largely the same in the UK, but the ones related to imports and export are not.
VAT now has to be paid when importing goods into the UK, there’s a postponed VAT accounting scheme in place to ensure things run smoothly while the country gets used to a new system. In essence, you can account for an import on your next return instead of having to pay VAT in the moment.
In addition, products under the value of £135 have the UK VAT rate applied to them at the point of sale if the seller is outside the UK.
When exporting to the EU, VAT-registered businesses can still benefit from zero-rate sales of goods. Import VAT and other customs duties have to be paid when the goods arrive in the EU. There are no longer EC sales lists either, so it’s important that you record all evidence of your sales to EU countries in case it’s needed somewhere down the line.
We’re both sole trader accountants and limited company accountants, and we’ve been helping businesses handle their VAT for a long time now. This means we can easily help you stay on top of your taxes and ensure you’re submitting the correct returns on time.