Despite being only 43 days away from implementation, nearly 60% of SMEs are not aware of the change to VAT rules which will affect the supply of telecommunications, broadcasting and electronic services to EU Member States, according to a KPMG survey.
With effect from 1 January 2015, all B2C suppliers of digital services will be required to charge, account for and pay local VAT based on the location of the consumer. For instance, if a business’ customer is in Germany, then the German rates and taxes will apply. What this means is if you supply to all 28 EU Member States, you will be required to register in every country where you have consumers. It’s worth noting that according to existing VAT rules UK businesses with a turnover of less than £81,000 do not need to register for VAT with HMRC, but with no minimum turnover threshold for the new EU VAT rules, VAT registration will be required regardless of the value of digital services supplied to Member States.
To save suppliers the burden of registering for VAT in each EU Member State they supply, HMRC has introduced an alternative online service called the VAT ‘Mini One Stop Shop’ or MOSS. Using MOSS an affected business will only need to register in one jurisdiction, make 1 MOSS VAT return, and 1 MOSS payment to cover all of its obligations across the EU. Suppliers, both UK-based and non-EU businesses can register for HMRC’s union VAT MOSS scheme and non-union VAT MOSS scheme respectively.
Both will however first need to register with HMRC through the gov.uk website. Once registered the business will be required to collect information about the supplies it is making to the consumers. At the end of each calendar quarter the business will submit its single return and payment to HMRC. HMRC will then split the payment and returns and send it to the appropriate Member States where the consumer lives.
According to Amanda Tickel, tax partner at KPMG, ““The new VAT rules mean affected companies face an increased compliance burden and billing becomes more difficult to manage. In the first instance, businesses need to ensure their systems can capture the right sort of information to evidence where each customer lives and apply the correct VAT rate.
In total an estimated 34,000 small and medium businesses are expected to be affected by the changes in the VAT rules. In terms of preparation, digital service suppliers should start identifying the countries in which their consumers are based and charge them the correct VAT rates when they buy a service. There are some additional obligations around keeping MOSS VAT records for 10 years, raising and issuing VAT invoices and compliance with the various VAT regimes across EU Member States. This might mean investment in new technology and front and back office systems to track and validate consumers and their locations.