A successful campaign by micro-business owners has seen the EU introduce a new minimum threshold for the VATMOSS rules. But with legislation due to take effect in January 2019 at risk from a no-deal Brexit, the success could be short-lived.
Under the EU rules on place of supply, VAT is charged on any sales of digital products to a non-business customer in the EU – in the country the customer is in. There is no minimum threshold, which means even the most casual trader is affected.
However, after a grassroots campaign by sole traders and micro-businesses, the EU announced a minimum turnover threshold of €10,000, and some simplification measures for businesses turning over €10,001–€100,000. The new measures will save digital traders with low profits from paying VAT on their digital sales.
The rules will take effect in UK law from 1 January 2019. However, with the Brexit date set for 29 March 2019, and the prospect of no deal with the EU, this could be very short-lived in effect.
The rules were introduced to close a loophole used by multinational businesses to avoid VAT, by registering their revenue in a low-tax country such as Luxembourg. Whilst large businesses could cope with the new requirements, this created a real administrative burden for smaller affected sellers now expected to pay VAT to tax authorities across the EU.
HMRC responded to the new rules by setting up a VAT Mini One-Stop Shop (VAT MOSS). This system allows traders to pay VAT for digital sales to the EU direct to HMRC, rather than register for VAT in each relevant EU country.
However, according to HMRC’s ‘VAT guidance on a no deal Brexit’, if the UK leaves without a deal with the EU, “businesses will no longer be able to use the UK’s Mini One Stop Shop (MOSS) portal to report and pay VAT on sales of digital services to consumers in the EU. Businesses that want to continue to use the MOSS system will need to register for the VAT MOSS non-Union scheme in an EU Member State.”
If you are selling digital products to the EU and would like advice, please contact me.