04 Sep VAT Recharge Scheme: FAQs
Following our article regarding the VAT Recharge Scheme put in action January 1, 2015, where we provided you with the basics of the new legislation, here are the most frequently asked questions answered by our accounting specialists.
Q: I have a small business that sells both digital and non-digital goods into the European Union (under the UK VAT threshold). Will I have to register my company and charge VAT on all my sales?
A: According to the HMRC, the registration threshold is a very sensitive issue. However, EU member states have agreed that the threshold is canceled, which means that if you are making cross-border supply of digital services, they have to register. That said, the HMRC are considering revisiting and going over this with the European Commission. Bottom line, if micro-businesses are struggling because they have to register VAT for the reason mentioned before, then the HRMC are willing to help.
Q: What can I do so that my virtual workshops are not listed as digital services? What does constitute human intervention in such work settings?
A: There is a difference between selling and filming an online lecture and real-time lecturing. The first is classed as digital service. To put it plainly, if there is zero human intervention involved whatsoever in the supply of the service in discussion, then it’s a digital service. If you cannot distribute online, then you cannot be regarded as providing a digital service.
That said, if the virtual classroom is filmed and then made available to re-watch on payment, then you are selling digital services. Please note that using the internet is nothing alike supplying a digital service.
Q: How can I (as a business owner) determine the VAT status of my customers?
A: Take into consideration that the new legislation applies to the Business-to-Consumer cross-border supply of services classed as digital (please refer to our article “The EU Recharge Scheme: How Does it Work?” for a comprehensive list). You will need to determine if your customer is a business or a non-taxable person. The European Commission has tried to make as sensible rules as possible. So, if a VRN (VAT Registration Number) is supplied, you can assume the transaction is a B2B one and that the supply is not affected by the new EU VAT regulations. If your customer does NOT have a VRN, you can assume they are a non-taxable person. In this case, you only add VAT to the supply.
Q: What determines the place of consumption?
A: You can start with the permanent address of your customer. Also, there are particular presumptions provided by published legislation to help in the process. For instance, if the supply is via a mobile network, landline, or telephone box, the location of these is the place of supply. If a customer has used a UK SIM card to download a digital service, then you can assume that the customer is a UK resident. Therefore, you apply UK VAT.
Other than that, you can consider your customer’s IP address, among other information (commercially accepted only). To determine the location of a customer, there are usually 3 types of presumptions:
(1) physical location (i.e. a Wi-Fi hotspot, and applies whenever a customer has to be physically located someplace to receive the digital service)
(2) decoder or SIM card
(3) over-the-top services
The latter applies to services not included in the previous two types. If, for example, a customer downloads an app from an app store. In this case, you need to collect two pieces of non-conflicting evidence, such as the IP address, billing address, credit card details, or any other relevant piece of information (always commercially accepted).
Especially merchants, can also accept a customer’s self-verification, and keep things simple so that traffic is not lost. You can disregard the location presumptions mentioned before only if the business that supplies the digital services gathers three pieces of non-contradictory evidence that refute the presumptions.
Q: When can my business register for MOSS?
A: From October 1. 2014 and onwards, the majority of EU member states have accepted MOSS registrations. After two major digital upgrades, the HMRC MOSS portal can provide you with all the information you may need. That said, when you register with MOSS, and if you are already registered for VAT, you will need to use your current VAT ID number.
Q: When does my business need to file returns with MOSS?
A: You know that accounting periods are every three months. MOSS businesses need to input their returns approximately 20 days before the calendar quarter ends. There will be no supplies equalling a nil return. You will still need to make the return. This is because the tax authority is aware that you will continue supplying cross-border digital services. You will have to support your business’ VAT return by making a payment.
The current template is similar to a multiple VAT return. However, you must identify the country where the digital services were supplied to and familiarise yourself with the VAT rate charged. In the return, you must have just one figure totalling ALL the services you have supplied, and the relevant tax authority will split the return among all member states of the European Union.