Business-to-consumer trades will be required to charge VAT, at the applicable rate, in the EU country in which the consumer is located, rather than where the seller is located. The changes are being introduced in an attempt to avoid the distortion of competition and create a level playing field across the EU.
These rules will apply to Television and Radio broadcasting services or other electronically supplied services such as websites and website hosting, downloaded software, downloaded texts, information or images, access to electronic databases, downloaded music, games or films as well as the supply of e-books or electronic publications.
Ordinarily the rules would require a (UK) supplier to register for VAT in each EU country in which it makes the affected supplies. To alleviate this burden, the supplier can alternatively register for a ‘’Mini One Stop Shop’’ (MOSS) online service which will enable the UK supplier to account for VAT due in any other EU country by submitting a single MOSS VAT return and the appropriate payment to HM Revenue and Customs in the UK.
Businesses will be able to register to use the MOSS scheme for VAT returns from October 2014 and the online service will be available to use from the 1st of January 2015. The government has stated that it could see an extra £300 million in revenue as a result of the tax changes.
Without doubt Small and Medium Enterprises (SMEs) will be the businesses that are the most hit with this new regulation, for example they will be obliged to implement many changes in a relatively short space of time. As a result billing management could become much more complex. In addition their costs may go up in certain countries.
Businesses will be forced to think carefully about where they carry out their operations. The current scheme encouraged many firms to be based in countries like Luxembourg as it charges a lower rate of tax than the UK. The new scheme will revoke this advantage. This means that business owners can no longer reap the benefits of their current location, and may choose to move to areas with lower staff costs, for example.
These new rules may also adversely affect costs so SME owners will need to ask themselves if they can realistically pass this on to their customers. One way to deal with this may be to make the increase very gradual. In this way you may reduce your profits temporarily but are less likely to lose customers in the short term.
January 2015 may seem a long way off nevertheless now is the time to evaluate the impact of the VAT changes on your business, make the necessary changes and plan for the potential use of MOSS.