By Jonathan Davies

From 1 January 2015, businesses offering digital services to non-business customers will need to charge and account for VAT in each EU member state they sell to.


HM Revenue & Customs (HMRC) has introduced a scheme called Mini One Stop Shop (MOSS). It allows businesses to register for VAT in the UK and account for VAT in EU member states in one single tax return, instead of having to register in each EU country.

HMRC has also launched a similar scheme for non-EU countries.

What does this mean for small businesses?

There has been widespread anger and frustration from digital businesses, particularly small ones which would struggle to cope with the increased cost of VAT if it couldn't be passed onto customers.

But it's not all bad news. HMRC recently made the somewhat surprising admission that small businesses may not have to pay VAT in the UK.

To qualify for the MOSS scheme, British companies must be registered for VAT in the UK. The UK's current VAT registration threshold is a relatively high £81,000, which means that many small businesses don't have to charge VAT on their digital services to private customers.

Most EU countries don't apply a VAT registration threshold like the UK does - so you'll have to register. So to use MOSS on their EU VAT, small businesses would have to pay VAT on all of their UK sales unnecessarily.

But HMRC recently confirmed that businesses below the £81,000 threshold can register for UK VAT but only charge VAT on EU sales - on the condition that they can clearly separate their sales between UK and EU.

What do you need consider?

- Is your business supplying a B2C digital service?
- Do you meet the UK VAT registration threshold?
- Will you need to change your prices?
- How will you separate UK and EU sales?

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