As the chances of a no deal Brexit increase, there are understandably many concerns about the impact of Brexit on businesses. Currently, there is no agreement in place for when the UK leaves the EU and the UK leaving without a deal is becoming a very real possibility. As a result, HMRC and other EU tax authorities have released various updates and guidance to prepare businesses for a no-deal.
HMRC have recently written to thousands of UK, US and other international businesses that sell digital services to consumers, to warn them to VAT register in other EU member states in readiness for a no-deal Brexit. In this article, we will be specifically looking at how the VAT changes due to a no-deal Brexit will impact businesses who are involved in these types of transactions.
The current legislation:
At the moment, the place of supply of digital services provided to consumers is where the customer belongs and this will remain so in the event of a no deal scenario. Given this, suppliers have and will still have a requirement to register and account for VAT in the country of their customer.
To prevent businesses from having to register in all EU member states when providing these services, the EU implemented the Mini One Stop Shop (MOSS) reporting mechanism. This allows businesses to report all of their EU electronic service sales to consumers, in one MOSS return via either their own EU tax authorities for EU companies or via any EU country via the non-EU suppliers MOSS reporting mechanism.
So what will change in the event of a no deal?
Once the UK is outside of the EU, UK based suppliers will not be allowed to use the EU-MOSS simplification to report electronic service transactions, therefore the HMRC portal for submitting these returns will close.
This will mean that businesses who use the UK MOSS portal will need to register in another EU member state to use their MOSS reporting mechanism, Ireland being the likely place due to their use of the English language. Alternatively suppliers can register in each EU country where they are selling electronic services.
This will mean that businesses who are selling electronic services into the UK will need to VAT register in the country, if they haven’t already, in order to start charging and accounting for UK VAT on their electronic supply transactions.
How should affected businesses prepare?
Businesses who are involved in the sale of electronic services to consumers directly, should analyse where they are currently making their supplies.
If UK suppliers are selling to consumers in other EU member states they should look to either, register for MOSS in another EU country or register separately in the countries where they are making supplies to consumers. This in order to report their transactions and settle any VAT due on their supplies.
Similarly for businesses making these types of supplies into the UK, if they are not VAT registered already they will need to do this in order to report the VAT due on these transactions direct to HMRC.
If you would like any further guidance or require our help with any EU registrations, then please contact us here.