EU E-Commerce VAT law changes for 2015
On January 1st 2015, whilst we nursed our hangovers, a new EU Ecommerce VAT law change came into play. There had been some fierce lobbying and clarification points addressed in December before the final paper was released. Ambergreen caught up with Sandy Fyfe, partner of Morris and Young, a chartered accountancy firm with great entrepreneurial flair and a shared vision of our digital future to get the low down from an expert’s opinion.
GW: Sandy, exactly what sort of ecommerce businesses will be affected by these changes?
SF: The notion of ‘e-commerce’ when commonly used covers various types of economic activity, including supplies of goods or services carried out over electronic systems such as the Internet. Not all of those activities are covered by the VAT changes that will enter into force on 1 January 2015. In particular the following activities are not covered by these changes: 1) the supply of goods (including distance selling) where use is made of electronic systems only to place the order, and 2) the supply of services other than telecommunications, broadcasting and electronic services. These types of transactions are not included in the arrangements for the mini One Stop Shop (MOSS). The scope of the 2015 VAT changes is limited and, as explained above, only covers telecommunications, broadcasting and electronic services. Those changes are relevant only insofar as the customer is a final consumer.
GW: What if your business sells both physical goods and electronic goods and services?
SF: The rules which already apply to selling both physical and electronic goods remain the same. The law change only applies to the following; (this is not an exhaustive list and only gives an overview)
Radio and television broadcasting services, these include –
- The supply of audio and audio-visual content for simultaneous listening or viewing by the general public on the basis of a programme schedule
- Live streaming via the internet if broadcast at the same time as transmission#
Telecommunications services, these include –
- Any transmission of signals of any nature (voice, data, video, images) by wire, optical, electromagnetic or other system (does not include call centre helpdesks)
Electronically supplied services, these include –
- Supplies of images or text, such as photos, screensavers, e-books and other digitised documents
- Supplies of music, films and games, including gambling games and programmes on demand
- Online magazines
- Website supply or web hosting services
- Distance maintenance of programmes and equipment
- Supplies or software and software updates and advertising space on a website
GW: What are the options for businesses?
SF: If businesses sell any of the services, reflected in the change, to private consumers or non-business entities they will have the option of registering for MOSS. Registration is not compulsory, however, any sale no matter how small to a private consumer in a EU member state will flag up the need to file a VAT return in that member state. Therefore to avoid an administrative minefield by registering in various if not all member states, MOSS seems to be the lesser of two evils.
GW: Could you explain when it is sensible to be VAT registered in the country that your customers are in and when you should Mini-One-Stop-Shop (MOSS) system?
SF: Being registered for VAT in the country that your customers are in means that you would only need to complete a VAT return for the local authority covering that member state, for example HM Revenue & Customs. MOSS would only be used if you sell the private customers and non-business entities in other EU member states. The MOSS system is a separate return for telecommunication services, broadcasting services and electronically supplied services only. The local authority VAT return, for everything else, still needs to be completed.
GW: What are the most important considerations moving forward?
SF: Planning – how your business is going to separate any broadcasting services, telecommunication services and e-services that are affected from any other goods or services you provide.
Being informed – keeping up to date on what the changes affect and how to deal with them along with any bundled packages you may sell (packages of services that have both a physical and electronic component).
GW: Applying the correct VAT pricing in accordance to the visitor?
SF: The EU provides a document with the correct VAT rates for each member state, a very valuable document. Please see the attached link to this article.
GW: Tell me about pricing?
SF: If you charge or invoice consumers in other member states in a currency other than pound sterling, and you record that price in your business accounts in that currency, you must convert the amount into sterling at the end of each calendar quarter using the conversion rate published by the European Central Bank on the last working day of that quarter.
However, if you automatically convert the foreign currency into sterling using an agreed daily or other periodic rate and you record these sterling amounts in your business accounts, you may use these figures to complete your quarterly VAT MOSS Return.
GW: What do you think will be the biggest challenges?
SF: Defining which services fall under the new rules and separating those services from any other goods and services you may provide.
GW: What sort of ramifications do you think there will be if companies have the wrong ecommerce platform, displaying the wrong invoice or price information?
SF: A business can have their MOSS records, which should be kept for 10 years, checked at any time by any member state that appears on their MOSS return. Any penalties levied will be dealt with in the relevant member state and in their currency.
GW: Is there any kind of ‘buffer’ or ‘parachute’ period to let brands put their changes into place after January 1st ?
SF: No. The first section of these EU changes came into effect in 2010 with the last section coming into effect January 2015 so there has been discussion around them for several years.
GW: So there you have it in a nutshell. Thanks to Sandy for helping us out with this new minefield, if you have any tax queries I’m sure Morris and Young may be able to help you out. Check out their website at www.morrisandyoung.co.uk
Happy trading in 2015