Good news for 'micro businesses' as new VAT rules come into force

The new rules for VAT on e-services supplied to private customers in the EU are now in force. With effect from 1 January 2015, any EU-based business providing electronic services to EU consumers must charge the VAT rate applicable in their customers’ jurisdiction, rather than the rate in their own country.

As our recent series blogs has identified, this creates some complex challenges for businesses, but developments late last year have eased the position, for micro businesses at least.

One positive move relates to the VAT Mini One Stop Shop (MOSS). Rather than registering for VAT in each country, businesses can register for the VAT MOSS with HMRC, and so make VAT payments and declarations to a single elected member state. However, 'micro businesses' which fall below the UK VAT registration threshold (currently £81,000) would then be liable for VAT on UK sales, as well as sales elsewhere in the EU, perhaps leading some to consider opting out of EU sales altogether.

HMRC has, however, announced a concession to release such UK micro businesses from domestic VAT payments even if they are registered for MOSS. “This is a welcome move,” says Moore Stephens VAT specialist Mark Chesham. “It’s good news that HMRC has recognised the issues faced by micro businesses and taken some action to avoid these businesses effectively being forced to charge VAT on domestic sales.”

Other last minute developments that should also prove helpful to micro businesses include Google agreeing to account for VAT on sales made through its channel, and PayPal agreeing to provide evidence of customer location to sellers.

There are still administrative challenges, however. “Businesses that take the option of MOSS registration using the above HMRC concession cannot recover VAT on costs that relate to UK sales,” Mark explains. “For costs that relate to UK sales and sales in other EU member states, an apportionment will need to be made, so there is a fair amount of complexity involved.”

Please get in touch for advice on the new VAT rules.