VAT MOSS stands for Mini One Stop Shop. It is a VAT Scheme designed by HMRC to try to create a level playing field between digital services business of all sizes in the EU.
Why Was VAT MOSS Introduced
Normally in the UK businesses are not required to register for VAT until their turnover reaches the VAT registration threshold, currently £85,000 for 2020/2021. Then once they are registered the rate of VAT charged, if at all, is related to the place of supply.
VAT MOSS turns the place of supply rule on its head, meaning the VAT rate applicable is the country in which the consumer lives.
In recent years, with digital services taking off, there was a trend arising where businesses began to locate themselves in lower VAT rated countries. That meant if they were VAT registered, the VAT added to their digital services gave them the competitive edge over other businesses located in different European countries.
What Businesses are Affected
VAT MOSS affects larger businesses provided digital services like radio & TV streaming and telecommunication services such as mobile phones or internet access.
Crucially for small and micro businesses VAT MOSS also covers what HMRC calls Electronically Supplied Services which is things like:
- downloadable training courses
- Music, games & films
- online magazines
- website supply or web hosting services
- distance maintenance of programmes and equipment
- supplies of software and software updates
- advertising space on a website
What Does Electronically Supplied Services Mean?
In working out whether your business needs to register for VAT MOSS you need to work out whether your digital service are electronically supplied.
An electronically supplied service is one which is delivered automatically over the internet with minimal or no human intervention.
- where the sale of the digital content is entirely automatic, for example, a consumer clicks the ‘Buy Now’ button on a website and either:
- the content downloads onto the consumer’s device
- the consumer receives an automated email containing the content
- where the sale of the digital content is essentially automatic, and the small amount of manual process involved doesn’t change the nature of the supply from an e-service
All e-services that are electronically supplied in the ways outlined above are digital services and are covered by the VAT rule change.
HMRC has provided a sample list of electronic supplies with guidance as to whether they would be covered by VAT MOSS or not.
Here is a copy:
|Covered by the rules|
|PDF document manually emailed by seller||Yes||No||No|
|PDF document automatically emailed by seller’s system||Yes||Yes||Yes|
|PDF document automatically downloaded from site||Yes||Yes||Yes|
|Stock photographs available for automatic download||Yes||Yes||Yes|
|Online course consisting of pre-recorded videos and downloadable PDFs||Yes||Yes||Yes|
|Online course consisting of pre-recorded videos and downloadable PDFs plus support from a live tutor||Yes||No||No|
|Individually commissioned content sent in digital form, for example, photographs, reports, medical results||Yes||No||No|
|Link to online content or download sent by manual email||Yes||Yes||Yes|
How to Register for VAT MOSS
Under VAT MOSS there are two ways to register your business and start collecting taxes:
- Register for VAT in each of the countries you supply digital services to and submit individual VAT returns and payments to each, in accordance with their individual rules;
- Register with HMRC for VAT MOSS and submit a single quarterly VAT return and payment. HMRC will then distribute the VAT you have collected it to each the countries you have sold your services to on your behalf.
Generally speaking, option number two of registering with HMRC in the UK is the simpler route.
The registration deadline is the 10th day of the month after your first digital service sale.
For example, If your first sale of digital services is on 8 February 2018, you must register by 10 March 2017. Your VAT MOSS registration will be backdated to 8 January, the date of your first sale.
Registering is fairly straightforward and you can do this online yourself.
If you are not already registered for UK VAT, then you will need to do this first. You can do this online HERE.
You’ll need to create an HMRC business online account. If you don’t already have one and there is more information here ‘How to Register for VAT Online‘.
Once your VAT Registration is completed head back into your HMRC business online account dashboard to begin your VAT MOSS registration process.
- Choose the option to find a tax, duty or scheme:
- Select the option to add ‘Another VAT Service’
- Finally, choose the following options – to add MOSS and that you are not already registered.
You will then enter the formal registration procedure for which you need to have the following information at the ready:
VAT MOSS Reporting Requirements
Once registered you are required to submit quarterly VAT MOSS returns via your HMRC business account by the following dates:
- 20 April – for first quarter ending 31 March
- 20 July – for second quarter ending 30 June
- 20 October – for third quarter ending 30 September
- 20 January – for fourth quarter ending 31 December
Submitting Your First HMRC Return
If your business is below the UK VAT Registration Limit (currently £85,000) then you must remember to submit a nil UK VAT return within the VAT section of your online account. Don’t forget because failure to do this may result in HMRC chasing you and issuing penalty notices.
How to Calculate How Much VAT to Pay
If you charge your customers a fixed rate, you’ll need to work out what portion of the money you have collected relates to VAT. Here’s how you work that out.
Say you sell an ebook for £15 including VAT across the EU, the amount that relates to VAT will differ according to which member state your customer lives in. Your customer lives in Sweden where the VAT rate is 25%, you will need to multiply the sales price by the VAT fraction to work out how much VAT you have collected.
The VAT MOSS Factions (100 + VAT rate) ÷ VAT rate = VAT fraction
So for Sweden the VAT Fraction is 5.
Thats means you’ll have collected VAT of £3 (£15 ÷ 5).
Claiming Back Input Tax on Purchases
When registered for VAT MOSS you’ll need to follow the rules on claiming back VAT on your purchases. The amount you are allowed to reclaim depends on your business turnover.
You are Below the UK VAT Registration Threshold of £85,000
You cannot claim back the exact amount of input VAT according to what you have paid. Instead, you claim a set percentage based on your UK/EU Sales.
Say for example 40% of your total turnover relates to EU sales, then you would be allowed to claim back 40% of your UK input tax.
You do this on your UK VAT return, instead of submitting it as a nil return.
You are Above the UK VAT Registration Threshold of £85,000
You can claim back 100% of your input VAT on your UK VAT Return.
As part of your quarterly reporting, you will need to summarise the
Keeping the right records will make accounting under VAT MOSS easier.
You should be keeping the following:
- details of the member state where you made the sales;
- the date you supplied a service;
- taxable amounts, including
- any increase or decrease of the taxable amount;
- VAT rate you applied;
- the amount of VAT due and the currency used;
- payments your business received – the dates and amounts;
- any payments on account your business received for services before you supplied them;
- invoices you issued;
- customer name –
- the information you used to work out where a customer is based.
You must keep this information for 10 years and be able to send it to HMRC electronically if asked.
Given the level of detailed involved, you will need to review your online payment system and decide whether you need an additional plugin to collect the information you need.
Making Tax Digital
Making Tax Digital has changed the way we file all our tax returns and pay taxes. While VAT MOSS is outside the scope of MTD, if you reclaim input VAT on a UK VAT return then you’ll need to make sure you follow the rules of Making Tax Digital.
Updated 28 October 2020