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The VAT rules are changing in January 2015. Help me collect information and resources to help micro-businesses that are caught up in the change.

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Everyone has a lot of questions about this, and there are answers to some of them. If you have a Q and A - with a link to an official source - please add it, or email me and I will add it.

Is HMRC removing the VAT Registration threshold?

No. The reason the threshold is effectively removed is the requirement to register for MOSS in order to pay VAT due to EU countries on sales. If you sell e-services only to the UK (or outside of Europe) or do not sell products or services that are covered by this ruling you can still remain non-VAT registered up to the threshold.

What is the MOSS?

Currently if you are VAT registered you charge VAT on these products at your own country rate. So for the UK 20%. You then send a VAT return which details how much VAT you have collected, deducting any VAT you are claiming back and pay HMRC the VAT owed. After Jan 1 you need to do this individually for each country you have made sales in.

The Mini One Stop Shop is a service that allows you to avoid registering for VAT in every country. You charge the correct amount of VAT for each sale and then report it in your MOSS return, and pay the VAT due. The MOSS then distributes the VAT correctly to each country.

You need to register for VAT in order to use the MOSS to pay the EU VAT that is due. This is why small businesses are being forced into registration.

I am a business outside of the EU, what do I do about this?

Businesses outside of the EU should have been charging VAT to EU customers and paying the VAT due for some time now however this has not been enforced. There have been suggestions that this ruling will now be more strictly enforced.

You can register for MOSS as a non-Union company by choosing a country to register in. If you are an English speaker then Ireland or the UK would probably make sense as the documentation would at least be comprehensible.

You would then need to follow the same rules as an EU based business in terms of charging the correct amount of VAT to EU residents and paying the VAT due via MOSS.

I am nowhere near the VAT Registration threshold in the UK, can I avoid this?

There are a couple of options. You can sell your products via an intermediary who becomes the main seller of the product, effectively sending you a royalty or cut of the profits. I have listed some of the possible intermediaries here.

In a Twitter FAQ, HMRC suggested that by adding a step of manual intervention into your process you can get round the issue. So instead of your site automatically delivering your ebook, it just emails you the order and you email out the product. Yes, this seems crazy. It also seems that people have been informed that this is not the case by HMRC, however below is the quote from the Twitter FAQ.

When does the "human intervention" exceed "minimal"

This is where the amount of manual process involved in the sale means that the service ceases to be an e-service. In these cases the website functions as a “shop window” for the sale rather than also providing the mechanism by which the sale is made – for example:

  • a customer clicks “Buy Now” button on website and is added to a list. At end of day the vendor takes list, manually completes an e-mail with each customer’s details, attaches the relevant content and hits “Send”; or
  • a customer emails vendor with details of the products they wish to purchase. Vendor manually replies to email and attaches the content.

This is only for B2C sales isn't it?

Yes, on paper. No in practice it seems. The only sure way to identify a business customer is via their VAT number. The existing VAT rules (and this doesn’t change) allow an EU business selling to an EU business in another member state to sell a product without adding VAT. The seller then records the payment and submits it with their EC Sales List. The purchaser then accounts for the VAT due in their own VAT Return under the Reverse Charge rules. The “place of supply” in this case is always where the customer is, but because the seller doesn’t need to charge the VAT we don’t run into these issues – we just have to validate the customer VAT number to prove they have one and are not in the same member state as us.

Many small businesses and freelancers are not VAT registered and so will generally need to be treated as a consumer for tax purposes.

See: Section 1.3: Determining the status of your customer