• The annual £8,818 de minimis sales threshold ends – it will be zero from 1 January 2021.
• UK businesses will need to register and submit returns and pay tax with the Non-Union VAT MOSS scheme, instead of the UK VAT MOSS scheme which will no longer be available.
• Another option is for UK businesses to separately register for VAT in each EU country where BTE sales are made to customers (B2C). If this option is taken, there will be no need to register for the Non-Union VAT MOSS scheme.

Other VAT changes are being introduced by the EU from 1 July 2021, which will affect UK businesses that either import goods into the EU with a shipment value of less than EUR 150 (for both goods that are being directly sold to the customer (B2C) or through an online market place), as well as those businesses which supply certain services in the EU that currently require a VAT registration in that country (eg land services or performance related services, such as those provided by a singer). The new procedures will not change the place of supply rules for services, only the way that VAT is declared and paid to the tax authorities. These new procedures are explained and analysed in TAXguide 20/20.

This TAXguide has been written by Neil Warren and edited by Philippa Vishnyakov.

Key questions and answers

An electronic service is one that heavily relies on the internet for its delivery, and also involves minimal human intervention. This does not mean that no human intervention is allowed but the overall outcome is that the service is mainly delivered by electronic means. An easy example is the sale of a book or publication in pdf format – or a subscription fee paid to a website.

Example 1

John in the UK gives some personal online training about health and fitness to Pierre in France. This is not a BTE service, even though it is delivered online, because it involves significant human intervention for its delivery.

Example 2

John in the UK sells a pdf book he has written to Pierre in France. The book automatically downloads when Pierre makes the purchase. This is a BTE service because it is delivered in electronic format and does not involve human intervention with the customer.

Electronically supplied services include:

• the supply of digitised products generally, including software and changes to or upgrades of software
• services providing or supporting a business or personal presence on an electronic network such as a website or a web page
• services automatically generated from a computer via the internet or an electronic network, in response to specific data input by the recipient
• the transfer for consideration of the right to put goods or services up for sale on an internet site operating as an online market on which potential buyers make their bids by an automated procedure and on which the parties are notified of a sale by electronic mail automatically generated from a computer
• internet service packages (ISP) of information in which the telecommunications component forms an ancillary and subordinate part (that is, packages going beyond mere internet access and including other elements such as:
• content pages giving access to news, weather or travel reports;
• playgrounds;
• website hosting;
• access to online debates.

The legislation (para 9(3), Sch 4A, Value Added Tax Act 1994) also gives the following examples:

• website supply, web hosting and distance maintenance of programmes and equipment
• supply of software and updating thereof
• supply of images, text and information, and making databases available
• supply of music, films and games, including games of chance and gambling games, and of political, cultural, artistic, sporting, scientific and entertainment broadcasts and broadcast events
• supply of distance teaching.

Note that this TAXguide considers UK businesses supplying directly to customers, without using a third-party online platform. The place of supply for such BTE services supplied to customers in the EU (B2C) depends on where the customer is based, so France in Example 2. This is different to the usual rule for B2C services, where the VAT charge usually depends on where the supplier is based. In other words, the general B2C rule is overridden for BTE supplies. This situation will continue after 31 December 2020, that is, there are no changes to the place of supply rules.

However, until 31 December 2020, a UK business does not need to worry about the overridden place of supply rules if the annual value of its BTE sales to EU customers outside the UK (B2C) is less than 10,000 Euros (ie, £8,818). The purpose of this de minimis threshold is to avoid an EU business, making a small amount of BTE sales in other EU countries (B2C), having to worry about charging the rate of VAT that applies in the customer’s country, and then paying this VAT to the tax authorities in that country. A supplier trading below this de minimis threshold continues to charge the rate of VAT that applies in its own EU country.

Example 3

Marie is based in the UK and sells digital online photos to private individuals living in Italy and Belgium, total annual sales are £3,000 in each country. She also sells £5,000 of photos each year to a business customer in Poland. 

Marie’s total B2C sales in the EU are less than £8,818. The business-to-business (B2B) sales in Poland are excluded from the de minimis calculation as it is only B2C sales that count. However, this threshold will end for UK businesses on 31 December, and a zero threshold applies instead.

The £8,818 de minimis threshold from Example 3 above will end for UK businesses on 31 December 2020. This is because the threshold is only relevant to BTE suppliers based in an EU country. For suppliers based in non-EU countries, the threshold is zero. The UK is a non-EU country and will be treated as such from 1 January 2021. 

Action point 1 

Ensure your clients are aware of the withdrawal of the de minimis threshold – in effect, VAT must be charged according to the rate that applies in the customer’s EU country for all BTE sales made to customers (B2C) from 1 January 2021 – there is no de minimis threshold.

MOSS was introduced in 2015 and stands for Mini-One-Stop-Shop. It is the way that a business in an EU country can submit a single electronic VAT return to the tax authority in its own country to declare all of the VAT that it has charged and collected in other EU countries for BTE services (B2C supplies only). This is an easier process than getting individual VAT registrations in each EU country where BTE sales are made to customers (B2C).

Example 4 

Between 1 January 2015 and 31 December 2020, a UK business making BTE sales (B2C) in France, Germany and UK dealt with the VAT in one of two ways:

• It registered separately for VAT in France and Germany, submitting monthly or quarterly VAT declared to the tax authority in that country. The VAT charged on UK BTE sales was paid on its usual UK VAT return submitted to HMRC.
• Alternatively, it registered for the UK MOSS scheme with HMRC and submitted a single MOSS return to HMRC each calendar quarter, so that all VAT paid and collected on BTE sales in EU countries outside the UK were dealt with on a single submission. This was a big saving of time compared to the alternative route of separate VAT registrations in, possibly, 27 different EU countries. The VAT charged on UK BTE sales was declared on its usual UK VAT return submitted to HMRC.

Action point 2 

The UK VAT MOSS scheme will no longer be available for UK businesses from 1 January 2021. UK businesses must submit their final UK MOSS return to 31 December 2020 to HMRC by 20 January 2021. From 1 January 2021, a UK business must either separately register for VAT in each EU country where BTE B2C sales are made or – the easier option – choose any EU country and register for the Non-Union VAT MOSS scheme in that country. 

HMRC’s guidance on the rules from 1 January 2021 is given on Pay VAT when you sell digital services to EU consumers from 1 January 2021.

The Non-Union VAT MOSS scheme will be available for UK businesses with no EU establishments. The EU guidance is given on VAT on digital services (MOSS scheme): Non-Union scheme.

The starting point is that a UK business must choose an EU country to register for the scheme. This will be the country where returns will be submitted each quarter and tax paid as well. The whole process is dealt with by electronic rather than paper submissions. 

The principles of the return will be the same as with the UK MOSS scheme – a business will record, for each EU country where BTE B2C sales are made, the total sales made and VAT collected in that country, along with the rate of VAT that has been applied. The rate of VAT always depends on the rate that applies in the EU country where supplies are being made (and not the EU country of registration unless the same). UK rates of VAT are irrelevant. 

The choice of EU country for registration is solely down to the UK business making sales, although it makes sense for the country to be one where English is a commonly used language such as Ireland, Holland or Malta.

Action point 3 

Discuss with your clients the best country in which to register for the Non-Union VAT MOSS scheme. They can register from 1 January 2021. They will deregister from the UK MOSS system at the same time. The deadline for registering with the Non-Union VAT MOSS Scheme is the tenth day of the month after relevant sales are first made in an EU country, meaning 10 February 2021 if sales are made in January 2021.

Example 5

Marie from Example 3 will need to register for the Non-Union VAT MOSS scheme from 1 January 2021, which must be done by 10 February 2021 if she were to make BTE B2C sales in January. She must check the VAT rates that apply in Italy and Belgium for online sales of digital photos and treat her sales as being inclusive of VAT at that rate from 1 January 2021. She will not charge any UK VAT on future B2C sales made to customers in Italy and Belgium, or any other EU country where she makes sales. 
The place of supply for the B2B sales to her Polish business customer is unchanged (ie, she will not charge UK VAT and the customer in Poland will apply the reverse charge on their own VAT return, based on the Polish rate of VAT). This outcome is based on the general B2B rule – VAT Notice 741A, para 6.3.

Some UK businesses making BTE sales in the EU will incur costs in those countries, which will include VAT. However, most supplies of services are not subject to domestic VAT under the general B2B rule (ie, the UK customer accounts for VAT on these costs on their own return by doing a reverse charge calculation). 

Where VAT is paid in other EU countries, the previous way of reclaiming this will also change for UK businesses from 1 January 2021. Until 31 December 2020, a claim was submitted online to HMRC, who forwarded the claim to the EU tax authority where the VAT was paid, so that it could be repaid. The deadline for such claims was 30 September, in relation to VAT paid up to the previous 31 December. This system can be used for expenses incurred before 1 January 2021, until 31 March 2021.

From 1 January 2021, UK businesses will need to submit what is commonly known as a 13th Directive claim, directly to the tax authority in the EU country where the VAT has been paid. It is important to be aware of the deadline dates in each country for such claims, as late claims will be rejected. The claims will be submitted in paper format, usually in the language of the country in question. 

HMRC’s guidance is given on Claim VAT refunds from EU countries from 1 January 2021. 

Specific EU country guidance is found via the EC (European Commission) website on EU country specific information on VAT.

Action point 4 

Most services supplied by an EU supplier to a UK business will not be subject to VAT in the supplier’s country because the place of supply is the UK and the UK business will declare the VAT on its own return by doing the reverse charge. It is important that your clients are aware that there will be no changes to this procedure from 1 January 2021, so they should ensure that EU suppliers do not think that domestic VAT must be charged because a UK business no longer has an EU VAT registration number.