What on earth is VATMOSS and does it apply to you?
Well to explain the ‘what’ this is my favourite explanation to date, using a banana analogy:
I grow bananas and sell them on a stall outside my house. I follow all the rules for banana-sellers, and happily sell to any of my neighbours who comes along. I don’t make much money, but it’s a little bit of income that I’ve worked for myself.
One day, I find out that a new law has been passed that says I need to find out which streets my customers live on. If I sell to a neighbour from Green Street, I have to go and pay a small tax to that street. If I sell to a customer from Red Street, I have to go and pay a different tax to them. If I sell to anyone from my own street, the rules are different.
A nice man called Mr Moss offers to help me find the right people to pay on each street, but it will be up to me to make sure all the payments are made correctly. The people on Green Street have some complicated rules that I’ll need to follow, by the way, but Mr Moss doesn’t know all the details as yet.
Not only do I have to find out which street each of my customers lives on, I also have to take their fingerprints when they buy a banana. And I need to store those fingerprints in a secure underground vault for 10 years. I ask Mr Moss how I’m supposed to get customers to agree to have their fingerprints taken, but he seems confused that I’m not doing this already. He also doesn’t know what I’m supposed to do if someone hides their fingerprints or lies about what street they live on.
I have considered only selling bananas to people on my street, even though this might lose me some customers, but apparently there’s another law that says I’m not allowed to discriminate on the basis of what street someone lives on.
I do have another option though. If I want to avoid doing any of this, I can sell my bananas at the Banana Superstore. They will take all responsibility for taking customers’ fingerprints and finding out what street they live on. However, they will take 65% of the money for themselves, and there’s no guarantee that they will actually stock my bananas in the first place. There’s always a chance that they might demand that I become one of their Banana Direct suppliers – meaning that I’m never allowed to sell my bananas at another superstore. Or they might let people have my bananas for free, as part of their Banana Unlimited programme, and only pay me a very, very small price for this.
I only have three weeks to decide which of these options I want to take. No one told me about the law in advance, because they didn’t think to tell anyone with a banana stall about it. They only informed the Banana Superstore, who are already prepared for the changes.
Now my banana stall’s future looks bleak, and I can’t seem to get any answers from Mr Moss. Apparently, an apple stall from Green Street has been told the new laws don’t apply to them, and the man who sells strawberries on Red Street hasn’t heard anything at all. I think the cherry-seller on Blue Street has just buried her head in the sand and pretended this has nothing to do with her. I’m currently being bombarded by people offering to take people’s fingerprints for me (for a price), and the powers-that-be just won’t accept that banana stalls like mine actually exist.
Is there any future for my little stall?
This is from the awesome: http://hannahkate.net/hannahs-bananas-a-vatmoss-analogy/
So, what is affected?
Essentially anything that is sold online in an automated way, ie. with no human element.
- Music downloads
- Knitting and craft patterns
- Downloadable software
- Software as a Service
- Webhosting services
- Downloads of training videos
- Online courses
- Digital products
- Subscriptions and memberships to online magazines etc
- Online Advertising
Here is the comprehensive breakdown from HMRC: VAT: businesses supplying digital services to private consumers https://www.gov.uk/government/publications/vat-supplying-digital-services-to-private-consumers/vat-businesses-supplying-digital-services-to-private-consumers#defining-digital-services
Who does it apply to?
See section 1.3 Determining the status of your customer https://www.gov.uk/government/publications/vat-supplying-digital-services-and-the-vat-mini-one-stop-shop/vat-supplying-digital-services-and-the-vat-mini-one-stop-shop
What are the options:
- Stop selling to EU countries other than the UK
- Sell via a distributor who deals with the VAT and pays you a royalty (eg ClickBank or Amazon)
- Register for VAT in every EC Country you sell to
- Register for VAT in the UK, and VATMOSS
Rachel Andrew is creating a list of companies who operate as a distributor which would mean not having to register for VAT: http://rachelandrew.github.io/eu-vat/implementation.html
Small businesses can still be 0% VAT in the UK
This was a small tweak made in December if a business is under the threshold (currently £80,000 turnover):
HMRC conceded that while micro companies are still obliged to register for VAT in the UK to use MOSS, they will no longer be forced to charge UK VAT on their domestic sales. A spokesperson for HMRC said: “Businesses below the current VAT registration threshold that can separate their sales to UK customers from sales to EU customers can voluntarily register the cross border element of their business, and then use that registration number to register for MOSS. This means that their domestic sales will remain VAT free.” “There will be no need to charge UK VAT on the UK sales, which was the major threat,” commented Richard Asquith, vice president of global tax at tax management firm Avalara.
If you are below the UK Threshold then you can find out more about your options here: https://www.gov.uk/register-and-use-the-vat-mini-one-stop-shop#businesses-currently-below-the-uk-vat-registration-threshold
Other articles that are useful to read through:
A refreshing positive article from the Social Marketing Queen, Veronica Pullen: Getting Ready to Comply With VAT MOSS Using Paypal http://veronicapullen.co.uk/2014/12/getting-ready-comply-vat-moss-using-paypal/
How small companies and freelancers can deal with the VATMOSS EU VAT changes http://rachelandrew.co.uk/archives/2014/11/25/how-small-companies-and-freelancers-can-deal-with-the-vatmoss-eu-vat-changes/
Everything Web Designers Need To Know About #VATMOSS http://www.webdesignerdepot.com/2014/12/everything-web-designers-need-to-know-about-vatmoss/
This is also a hugely helpful and informative post from the lovely Rosie Slosek: EU VAT Changes 2015 – What You Can Do http://onemanbandaccounting.co.uk/eu-vat-changes-2015/
If you really want to get downright dirty with this then take a look at this beast of a publication: Explanatory notes on the EU VAT changes to the place of supply of telecommunications, broadcasting and electronic services that enter into force in 2015 http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/how_vat_works/telecom/explanatory_notes_2015_en.pdf
And last but by no means least; keep a close eye on Twitter with the hashtag #vatmoss and #euvat as there is constant updates on there about what’s going on.
If you are so inclined you can join in the petition to instigate a threshold for VAT in the EU (among other things) here: https://www.change.org/p/vince-cable-mp-uphold-the-vat-exemption-threshold-for-businesses-supplying-digital-products