A year since the ‘new’ VAT place of supply rules for B2C supplies of digital services came into force, Alison Sampson, Senior VAT Advisor, at UK200Group member firm, Knill James Chartered Accountants looks at how they have impacted on SMEs.
It is over a year since the ‘new’ VAT place of supply rules for B2C supplies of digital services came into force, whereby the place of supply is determined by the location of the customer.
Hailed as a measure to create a ‘level playing field’, what has been the reality?
In truth, it is a case that SME businesses are muddling through!
It is an administrative burden to establish where consumers belong – it is not obvious from an email address and requires further clarification.
Then there is the VAT rate. Standard rates of VAT throughout the EU range from 19% to 27% (most are 20% or more), so this presents problems for pricing. On a £20 product, there is over £1 extra VAT to be accounted for on a supply to a consumer based in Hungary, compared to one based in Cyprus. This impacts on the profit margin.
There has been little feedback from HMRC about MOSS compliance for UK businesses but it certainly is an added complication.
MOSS return periods do not always mirror VAT Return periods, and I know of businesses that have occasionally needed to declare a few pence for each MOSS return.
“Hardly a simplification!” I hear you cry. Well, it is, as otherwise there would be a requirement to register for VAT in each member state in which B2C supplies of digital services are made.
Although many businesses do not make MOSS supplies, there are probably lots of businesses that are doing so but not making MOSS declarations, some out of ignorance and some knowingly. Those that make only minimal MOSS supplies will be incurring far more cost in trying to comply with their MOSS obligations than the amount of VAT at stake. Time will tell whether HMRC and other EU Tax Authorities really have much interest in checking compliance.
In the meantime, it will be prudent to take reasonable measures to ensure that MOSS declarations are accurate and timely to keep under the HMRC radar – if they even have one!
An additional consideration is that a supplier of B2C MOSS supplies is required to raise and issue VAT invoices in accordance with the requirements of each member state where B2C customers are located – is that really practical?
If B2C supplies of digital services are not likely to be very frequent or of limited value, a supplier may prefer to ensure that supplies are channelled through an agent or online market place, to ensure that supplies are B2B.
Finally, don’t forget that B2C supplies of digital services to consumers in non-EU countries may trigger a need for VAT/GST accounting too!
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