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New VAT rules for sales of goods and services online

13 December 2016

New VAT rules for online businesses

The European Commission has published detailed proposals for VAT reforms affecting e-commerce transactions, including ebooks and other electronic publications, B2C sales of digital downloads and other services, and B2C distance sales of goods. The new proposals form part of the EU’s VAT Action Plan announced last Spring, which aim to prevent fraud and avoidance in cross border trade and simplify the rules for SMEs. They will come into force in 2018 and 2021.

The proposals include changes relevant to both Intra-EU trade and to non-EU e-commerce businesses selling into the EU; so they will affect UK sellers whether or not the UK has left the EU by the time they are introduced.

The Mini One Stop Shop (MOSS) - simplifications for SMEs in 2019

From 1 January 2019, a threshold will be introduced to excuse businesses with very low levels of MOSS supplies (ie telecoms, broadcasting and electronically supplied services) from the obligation to use MOSS. Businesses whose annual turnover from MOSS supplies is below €10,000 will be able to revert to the pre-2015 system of just charging VAT at the rate applicable in their own country instead.

Businesses whose annual turnover does not exceed €100,000 will benefit from simplified rules for identifying where their customers are based. Full details are yet to be published, but previous comments from HMRC suggest that the tax authorities may accept a single piece of evidence to establish customer location – under current rules at least two pieces of evidence are required. 

MOSS scheme users will also be allowed to apply the invoicing and record keeping rules of the EU member state where they are VAT registered. This removes the current requirement for suppliers to comply with the rules in each country where they make supplies. The requirement to keep MOSS records for ten years will also be removed – instead, businesses must follow the normal record retention time limits of their home member state (which in the UK is currently six years).

E-commerce changes in 2021

From 1 January 2021, the MOSS rules (currently only applied to telecoms, broadcasting and electronically supplied services) will be extended to cover intra-EU sales of other services to B2C customers, and also to distance sales of goods. EU vendors will be allowed to use their current MOSS registrations to declare the VAT payable in each member state.

Non-EU vendors can also use their MOSS registrations to declare other B2C services, but there will be a separate scheme set up to cover distance sales of goods imported from outside the EU in consignments whose value does not exceed €150. Under that scheme, VAT will be payable on receipt of payment from customer, probably via an online registration. Goods covered by this scheme will be exempt from VAT at the point of import provided the vendor quotes its EU VAT registration number on the customs entry.

The new arrangements mean that the current distance selling thresholds and the low value consignment relief (for imports whose value does not exceed €22) will be abolished.

Reduced VAT rates for electronic publications

Finally, the Commission plans to grant member states the power to apply the same VAT rates to electronic publications as they current apply to printed publications. Currently, e-publications are subject to VAT at the standard rate of 20% in the UK because the zero rate for books, newspapers, magazines etc. is based on the physical characteristics of a printed publication. This change should allow UK publishers (and UK organisations that incur a reverse charge VAT liability on e-publications bought from overseas) to zero-rate e-books as well as their hard copy equivalents. However, the zero rate of VAT shouldn’t apply to e-publications predominantly consisting of music or video content – those should remain subject to the full rate of VAT.

While no precise date has been given for the change to come into force, the Commission says that the proposal will take effect as soon as it is approved by the Council. Previous comments at EU level suggest that the Commission is keen to get the law changed on this point as soon as possible – so, zero-rating of e-publications in the UK might perhaps become a reality as soon as next year. 

For more information on VAT on online sales please contact Mark Ellis.

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