Indirect Tax Update for week ending 12 November 2014

1. Indirect Tax Update for week ending 12 December 2014
Headline this week is that HMRC has confirmed the rumour regarding UK VAT registration
for smaller UK businesses supplying digital services to consumers in other Member
States.
HMRC has published Revenue & Customs Brief 46/2014. We had heard a rumour that
this announcement was to be made. The brief confirms that smaller businesses which
are not currently registered for VAT in the UK (because they trade below the VAT
registration threshold) and which sell digital or electronic services to consumers in
other Member States of the EU can now register for UK VAT. Affected businesses can
now register for UK VAT and, in turn, register for the Mini-One-Stop-Shop (MOSS)
scheme. However, even though they will be VAT registered in the UK, they will not be
required to account for any VAT on their UK sales. Similarly, even though they will be
registered for UK VAT, HMRC make it clear that affected businesses will not be
entitled to reclaim any input VAT incurred on costs relating to UK sales.
Prior to this announcement, smaller UK businesses which were not registered for VAT
could not take advantage of the MOSS registration scheme. Consequently, they either
had to register for VAT in every Member State in which they made digital sales or face
having to register and account for UK VAT on UK sales. Either way, smaller businesses
faced increased costs and faced a fiscal barrier to doing business in Europe. The
problem has been known about for many months and this solution shows that HMRC
has listened to smaller businesses in the UK. It’s a shame that this could not have been
announced much earlier in the process. Businesses trading below the UK VAT
registration threshold will undoubtedly be pleased with this simple, yet pragmatic
solution.
Comment – Whilst the arrangement does provide a pragmatic solution for UK
businesses, it is not clear whether it will be accepted by the EU. Under UK VAT law, a
'taxable person' has a special status. A taxable person is any person who is, or who is
required to be registered for VAT. Any business registering for UK VAT under this
concessionary arrangement will, therefore, automatically become a 'taxable person'
and, as such, would, ordinarily, be required to account for VAT on sales and be entitled
to reclaim VAT on purchases. It will be interesting to see if the EU accepts the
simplification arrangement. The Commission has been aware of the problem for many
months and has simply said that the problem was solely of the UK's own making due to
the UK's high VAT registration threshold.
For further information in
relation to any of the
issues highlighted in this
Indirect Tax Update
please contact:
Karen Robb
karen.robb@uk.gt.com
Stuart Brodie
stuart.brodie@uk.gt.com
Andrea Sofield
andrea.sofield@uk.gt.com
Richard Gilroy
Richard.gilroy@uk.gt.com
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Indirect Tax Update 46/2014