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This publication is available at https://www.gov.uk/government/publications/vat-changes-to-the-supply-of-digital-services-2019/vat-changes-to-the-supply-of-digital-services-2019
Who is likely to be affected
Businesses making sales of digital services across the EU.
This includes users, or prospective users, of the UK VAT Mini One Stop Shop (MOSS), as well as businesses not established in the UK who sell digital services to UK and EU customers.
General description of the measure
This measure will make 2 changes to the rules for businesses making sales of digital services across the EU.
- Introduce a (sterling equivalent) €10,000 threshold for total supplies to the EU in a year of sales of digital services. This change means businesses will only be subject to the VAT rules of their home country if their relevant sales across the EU in a year (and the preceding year) falls below this threshold.
If the businesses total taxable turnover is below the UK VAT registration threshold they will be able to de-register from VAT. Businesses can continue to apply the current rules if they so choose.
- Allow non-EU businesses, which are registered for VAT for other purposes, to use the MOSS scheme to account for VAT on sales of digital services to EU member states. This group are currently excluded from using MOSS – a business facilitation system.
The changes come into effect at an EU level. The purpose is to ease the administrative burden on businesses making sales of digital services, and to allow a group of businesses currently excluded from the MOSS scheme to access it.
Background to the measure
In 2015 the VAT rules changed so that businesses making sales of digital services across the EU had to account for VAT in each EU member state that their customers are based in. There is no VAT threshold for these types of sales and so VAT is due on all sales made to other EU member states.
The VAT MOSS scheme was introduced to simplify the administration of the VAT system for businesses making these types of sales overseas. This is an online service which allows businesses to account for all VAT due on these types of supplies through a single return in their home country, rather than registering in every member state where they have customers.
An assessment of the scheme identified a number of areas for improvement which these measures introduce.
These changes were agreed across all EU member states in December 2017. There has been no prior consultation because these changes have been agreed with the EU and are changes which the UK is obliged to make on 1 January 2019.
The measure will have effect from 1 January 2019.
Inclusion of Non-Established Persons in MOSS - current law is contained in Section 3A of the VAT Act 1994 and in Schedule 3B of the VAT Act 1994.
Introduction of a threshold – current law is contained in Schedule 4A, para 15(1) of the VAT Act 1994.
The changes are as follows:
- threshold – a statutory instrument (SI) subject to affirmative resolution will be made under section 7 of the VAT Act – the SI will amend Schedule 4A and will introduce a €10,000 threshold into the Place of Supply rules for VAT for businesses making sales of digital services
- non-established persons – a SI subject to negative resolution will be made under section 3A of the VAT Act – the SI will amend Schedule 3B and will introduce legislation to allow all non-established taxable persons making supplies of digital services to customers in the EU to join the Non-Union VAT MOSS scheme
Summary of impacts
Exchequer impact (£m)
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This measure is expected to have a negligible impact on the Exchequer.
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
This measure has no impact on individuals as it only affects businesses. The measure is not expected to impact on family formation, stability or breakdown.
It’s not anticipated that this measure will impact on groups with protected characteristics. The exception to this is that those people who do not have access to the internet will not be able to benefit from the changes to MOSS, although the introduction of a threshold will apply to those making cross border digital sales regardless of whether they use the MOSS scheme or not.
Accessibility was considered when MOSS was introduced. It’s an online voluntary business service provided to facilitate the payment of VAT to other member states where that business is not established. By the very nature of the sales involved (digital services), it is likely that businesses whom the measure is aimed at will have access to the internet.
Impact on business including civil society organisations
This measure is expected to have a positive impact on approximately 1200 businesses that fall below the €10,000 turnover threshold, as all their supplies of digital services (including those to other EU member states) will now be treated as though those supplies were made in the UK. This means they will not be required to register for VAT in the UK if their total taxable turnover falls below the UK VAT registration threshold.
It is also expected to have a positive impact on non-EU businesses which are registered for VAT for other purposes as they will now be able to use the MOSS scheme to account for VAT on sales of digital services to EU member states. This group is currently excluded from using MOSS.
The measure will reduce business administrative burdens. An on-going saving will result from the affected businesses no longer being required to register for VAT and submit VAT Returns, estimated at around £260 per annum per business. In addition there will be a reduction in administrative burden from the affected businesses no longer being required to report quarterly through MOSS – this is estimated at around £40 per annum per business.
It is not possible to quantify the overall administrative burden saving as the numbers of businesses who are likely to de-register is not known. There will be negligible one-off costs of familiarisation with the changes. There is no impact on civil society organisations.
Operational impact (£m) (HMRC or other)
It’s not anticipated that implementing this change will increase operational costs. HMRC will need to make minor IT changes but this will be at negligible cost.
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be monitored through information collected from VAT MOSS Returns and receipts.
If you have any questions about this change contact the VAT General Enquiries team.
Mel Stride MP, Financial Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.