VAT-MOSS Webinar 2nd December 2014 – Quick Notes

[vc_row type=”full_width_background” bg_position=”center top” bg_repeat=”no-repeat” bg_color=”#2474bf” scene_position=”center” text_color=”light” text_align=”left” top_padding=”11″ bottom_padding=”11″][vc_column width=”1/1″][vc_column_text]VAT-MOSS Webinar 2nd December 2014 – Notes & Comments[/vc_column_text][/vc_column][/vc_row][vc_row type=”in_container” bg_position=”left top” bg_repeat=”no-repeat” scene_position=”center” text_color=”dark” text_align=”left” top_padding=”11″][vc_column width=”1/2″][vc_column_text]NOTE: These are detailed notes from today’s HMRC webinar and should be used for guidance only. They do not constitute legal advice.

As a group, we collated 21 core questions from the 5,000+ posts and tweets over the past week and ALL of these were asked, which is brilliant.

Whether they were answered is another matter… 😉

Attendees:
Andrew Webb from HMRC
Esteban Van Goor from Baker & McKenzie
John McCarthy from Taxamo

Thank you to Taxamo for arranging and hosting the webinar.[/vc_column_text][/vc_column][vc_column width=”1/2″][vc_column_text]

Webinar Replay

[/vc_column_text][vc_video link=”https://vimeo.com/113424003″][/vc_column][/vc_row][vc_row type=”full_width_background” bg_position=”center top” bg_repeat=”no-repeat” bg_color=”#2474bf” scene_position=”center” text_color=”light” text_align=”left” top_padding=”11″ bottom_padding=”11″][vc_column width=”2/3″][vc_column_text] Andrew Webb from HMRC began by explaining why the legislation was introduced:
To level competition – creating fair competition between all suppliers. He gave the example of multi-national corporations who could effectively choose where to locate their businesses to take advantage of lower VAT rates, whilst the member states to whose residents they were selling received none of the VAT, even though the services were supplied in their states. For some countries, this is a significant amount of revenue.

HMRC didn’t intend this provision to unduly impact on smaller businesses, which is why ‘digital platforms’ are required to take on responsibility for accounting for the VAT via their platform. So if you ONLY sell through 3rd parties, you don’t have to do anything different.

Note: this doesn’t include Payment Processors, such as PayPal, because they’re a credit card handler, not a platform.

HMRC admits that 1 or 2 important small business sectors didn’t see the many sources of information…[/vc_column_text][/vc_column][vc_column width=”1/3″][vc_column_text]

CJ NOTE: But actually it doesn’t level competition because, if some nano businesses have to register for VAT, to comply with VAT-MOSS, then they could have to add VAT to their UK sales, as well as non-UK EU sales, when their competitor, who doesn’t sell to Europe, does not.

[/vc_column_text][/vc_column][/vc_row][vc_row type=”in_container” bg_position=”left top” bg_repeat=”no-repeat” scene_position=”center” text_color=”dark” text_align=”left” top_padding=”11″][vc_column width=”1/1″][heading subtitle=”Is It An E-Service Or Not?”] [/heading][/vc_column][/vc_row][vc_row][vc_column width=”1/1″][vc_column_text]Question: How can we reliably determine whether our product / service falls under the VAT-MOSS liable ‘digitally-delivered’ category? Who can we ask if we’re still not sure?
Answer:“No or minimal human intervention”
“Fully automated.”
Andrew Webb: A detailed list in the Annex of the European Commission’s explanatory notes. About 4 pages. They are an EXPLANATION to help you understand fully what digital services are about. But it is NOT LEGISLATION. But they were discussed and agreed by all the member states.

If not sure, who can we ask?
Go to the explanatory notes above…
At the end of last week, HMRC issued a clarification document: CJ NOTE: Link to follow

Some member states may not follow HMRC’s interpretation.

Examples Of What Are / Aren’t E-Services

[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column width=”2/3″][vc_column_text]Example 1: How much human intervention is needed to be ‘significant’?
e.g. Virtual classroom, combining live webinars, pre-recorded videos, pdfs and a moderated Facebook group, but where emails are automated.
Answer: NOT an e-service. More than a small amount of human intervention.

Example 2: If you offer your course on a donation-basis – i.e. customers are not charged and customers have the option to make a donation afterwards.
Answer: not within the scope of VAT at all – as long as it is GENUINELY a FREE provision.

Example 3: Membership of a website which gets you any-time access to a range of digital pdfs / videos / podcasts
Answer: All automated at point of download therefore liable.

Example 4: CD, which comes with a bonus digital download, such as an audio of the book.
Answer: If you are selling a good, not a service, and the primary purchase (i.e. the thing the person wants) is the good / product, then it’s not liable. But if you can distinguish clearly between the two supplies, then that WOULD be liable.

Example 5: Selling patterns through an online store, but the actual PDF pattern is manually emailed.
Answer: Difficult borderline. If it is effectively someone sends through a request and all you do is send it to them then there is minimal human intervention and it is then an e-service and is VAT-MOSS liable. If you need to make a bespoke pattern or communication, then it’s not VAT-MOSS.

Esteban: Ask yourself: are you supplying a good or a service?
Then, if you are supplying a service, is it an e-service?

Question: How should we handle transactions where there are two places of supply in one invoice?
Answer (Esteban): Are they two single supplies or one single supply? In principle, if you have a supply of goods and services then they should be treated separately, unless the service is ancillary to the main taxable supply.
e.g. sell CD ROM and also provide software download: if it is a separate supply from a consumer point of view, then if part of it is an e-service, you have to VAT-MOSS that part of the transaction. So, yes, you could have two places of supply in one transaction – the business’s place of supply for the CD but the customer’s address for the software.[/vc_column_text][/vc_column][vc_column width=”1/3″][vc_column_text]

CJ NOTE: Some of this contradicts the Twitter Q&A but Andrew made it clear that it’s hard to be accurate in 140 characters.
Question about CD + e-service was misunderstood, because it actually talked about the CD and e-service NOT being related, but being purchased at the same time. However, I take their answer to mean that, yes, you can have two countries of supply on one invoice: the business’s country for the CD and the customer’s country for the e-service.

Can any tax specialists confirm how a micro business should handle this (2 countries in one invoice)?

[/vc_column_text][/vc_column][/vc_row][vc_row type=”in_container” bg_position=”left top” bg_repeat=”no-repeat” scene_position=”center” text_color=”dark” text_align=”left” top_padding=”11″][vc_column width=”1/1″][heading subtitle=”How Do You Handle VAT-MOSS If You’re Under The UK VAT Threshold?”] [/heading][/vc_column][/vc_row][vc_row type=”in_container” bg_position=”left top” bg_repeat=”no-repeat” scene_position=”center” text_color=”dark” text_align=”left” top_padding=”11″][vc_column width=”2/3″][vc_column_text] Question: How do you register for MOSS if you’re below the UK VAT threshold?
Will the system accept NIL returns?
Answer: You have to voluntarily register for VAT because you need a VAT number to register. They are content for a business to register JUST in the extent of its cross-border activity, so it can still continue to make use of the UK VAT threshold, so it needn’t charge VAT on its below-threshold UK supplies.
You will leave your domestic activity untouched.

Question: How many have registered for MOSS and how is the software performing?
Answer: 400 businesses registered so far.
CJ NOTE: WHAT???? They expect 40,000 to need to, so only 1% has so far registered – and that includes the big businesses to whom they have been talking for 18 months. 4 weeks to go…

Question: Should someone who is planning to start trading in 2015 with B2C sales, liable for VAT-MOSS, should they register, even though they don’t know whether any sales will come from outside of the UK?
Answer: Yes, because then you have the ability to account for the tax that will be due. Otherwise, if you make a sale to another member state, you would have to account for VAT in that state.
You COULD wait until you make the supply to a member state, you have the option of telling HMRC, by the 10th day of the following month, then the registration for VAT-MOSS can be made retrospectively.

Question: Why does the domestic threshold not apply?
Answer: Because there is no threshold for cross-border supplies, so every sale must go through VAT-MOSS or the member state’s VAT scheme.
For domestic supply, each member state can apply its own threshold.

Question: Please explain how this revenue splitting will work? We are not aware of anything in legislation that would allow us to be registered for VAT but not have to charge it on our UK business.
Answer: If you can separate the UK domestic supplies, from cross-border supplies, then you can voluntarily register for VAT and MOSS for cross-border only.
HMRC will issue information shortly on this. It will not happen today, due to the Autumn Statement from the Chancellor.
They have realised that the Twitter Q&A clinic is a very limited way of communicating clearly. Therefore they will give a clear statement of what we can and can’t do soon.

Question: Will you have to create a separate limited company for the non-UK EU sales? How should sole traders handle this?
Answer: HMRC is preparing detailed information on this. A one-line answer on a webinar will raise lots of supplementary points.[/vc_column_text][/vc_column][vc_column width=”1/3″][vc_column_text]

CJ NOTE: Please keep an eye on the Digital VAT 2015 group and we’ll make sure you know when the promised clarification document comes out.

It is frustrating, but reasonable, that the mechanics of the ‘how to’ of this were not answered today. Andrew Webb’s point that it can lead to more confusion is valid. They have promised a document to explain how we can account for non-UK EU VAT, whilst keeping our UK VAT threshold.

This is brilliant news and would not have come about without the campaigning of the past few weeks. Thank you everyone!

[/vc_column_text][/vc_column][/vc_row][vc_row type=”in_container” bg_position=”left top” bg_repeat=”no-repeat” scene_position=”center” text_color=”dark” text_align=”left” top_padding=”11″][vc_column width=”1/1″][heading subtitle=”How To Prove Place Of Supply”] [/heading][/vc_column][/vc_row][vc_row type=”in_container” bg_position=”left top” bg_repeat=”no-repeat” scene_position=”center” text_color=”dark” text_align=”left” top_padding=”11″][vc_column width=”2/3″][vc_column_text] Question: How can we show customer location evidence if our current systems do not capture 2 pieces of non-conflicting, non-duplicated evidence.
Answer: From Taxamo: you actually need 3 and you need to update your systems so you CAN collect them.
You need 2 pieces of non-conflicting evidence. So update your systems.
Esteban: He believes that the average checkout process will supply this. Yes, ask for 3 pieces, to avoid the potential of 2 that conflict.
John (Taxamo): the payment processor should provide the sources of evidence. He believes it is there, if you look for it.
Andrew (HMRC): He accepts this is a problem for micro businesses, because they’re not geared up well to collect this information. The idea of putting in geolocation software to check IP addresses costs money and a micro business won’t want to get into it.
It could well be that some of the payment handling providers are able to assist the small businesses with this.
A week ago, PayPal announced that it WILL be able and willing to help small businesses by providing them with the 2 pieces of information.

CJ NOTE: In an email to us, PayPal confirmed what they can and can’t supply and it doesn’t look like it will comply with the regulations. Their press release was woolly and it is worrying that HRMC is putting so much faith in it.
We will endeavour to help HMRC understand the severity of this during our meeting with them on Thursday.

Question: How does the requirement to collect and retain IP addresses fit with the recent instruction from EU Data Protection Agencies that businesses should STOP doing this?
Answer: Esteban: There may be provisions in privacy law, if the IP address is required for business purposes.
Andrew (HMRC): The legislation offers the choice of a range of pieces of information, so if IP address is something you’re uncomfortable with, then choose one of the others.
Payment Providers should make this task easier.
Yes, it could require you to register with each state’s Information Commissioner Office. You WILL be required to register with the UK ICO. It’s only £35.
.
Esteban: He asks: where would you store the data (server location)? We need to seek answers.
Approx 56 minutes point.

CJ NOTE: HMRC is missing the point: ICO is an admin hassle and a huge change in how you store your computer.
Registering with the ICO in the UK is a much bigger deal than ‘just paying a £35 fee’. It comes with huge admin and security implications – as would befit a corporate institution, but ridiculous for a back-bedroom craft pattern seller.

We will also ask Taxamo to get Esteban to clarify where we stand on the Data Protection concerns he mentioned, including server location. [/vc_column_text][/vc_column][vc_column width=”1/3″][vc_column_text]

CJ NOTE: As we see it, at the moment, this is the biggest issue.

HMRC simply hasn’t understood how difficult it is for non-techy nano businesses to collect the required proof of place of supply accurately, without paying extra for 3rd party solutions. This article explains why PayPal can’t do it, for most of us.

This will be the major focus of our campaigning at this Thursday’s HMRC meeting – and beyond.

HMRC has said in its impact assessment documents that it believes all of this data is already easily available. For nano businesses it isn’t.

We are requesting an exemption from the burden of 3 pieces of evidence, to allow the customer’s self-declared address to suffice for nano businesses.

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Question: Is it a breach of EU trade law for us to reject or prevent sales from non-UK EU?
Answer: HMRC: He doesn’t think we can do this. The single market directives would see this as discrimination, which is not permissible.
Esteban: Freedom of services: it would be hard to do this. Note: he thinks it is technically infeasible.
He does not think that banning non-UK EU sales would be acceptable.
If you were audited and found to have non-UK sales then you would face a serious problem.

Question: And if someone doesn’t register for VAT-MOSS, is it adequate to put a notice on their site saying that their products are not available to non-UK EU residents?
Answer: HMRC: There shouldn’t be discrimination or prevention of sales.

Question: If we exclude EU sales, do we need to collect the 2 pieces of data and keep it for 10 years? Howe do we evidence having prevented non-UK sales?
Answer: If the sales aren’t taking place, then no. If they could…?
You don’t have to prove the negative, CJ NOTE: in ANDREW’s view.[/vc_column_text][/vc_column][vc_column width=”1/3″][vc_column_text]

HMRC clearly considers it a breach of EU trade law if we exclude non-UK EU sales, in order to avoid VAT-MOSS.

NOTE: Andrew Webb might think it’s ok not to ‘have to prove the negative’ (i.e. prove you didn’t sell to non-UK EU), but the other member states, who would enforce the penalties, might disagree. Take professional advice before choosing not to bother checking where your customer is based.

[/vc_column_text][/vc_column][/vc_row][vc_row type=”in_container” bg_position=”left top” bg_repeat=”no-repeat” scene_position=”center” text_color=”dark” text_align=”left” top_padding=”11″][vc_column width=”1/1″][heading subtitle=”Compliance Of 3rd Party Platforms”] [/heading][/vc_column][/vc_row][vc_row type=”in_container” bg_position=”left top” bg_repeat=”no-repeat” scene_position=”center” text_color=”dark” text_align=”left” top_padding=”11″][vc_column width=”2/3″][vc_column_text]

Question: What do we do if our payment processor doesn’t comply with VAT-MOSS on place of supply?
Answer: HRMC has read that PayPal DOES comply. Businesses should confirm their provider will supply the evidence.

Question: Is anyone from HMRC / EU communicating with the 3rd party platforms?
Answer: Some conversations. Although the legislation has been set up so that platforms have responsibility for the VAT, and was agreed more than a year ago, some of the platforms have been slow to react. They will try to have a conversation if HMRC is told about any who aren’t going to comply.
The platform remains responsible if they don’t comply, not the individual business using it.
Platform = digital store / digital sales platform – anywhere that you PUT your digital products, where the public assumes they are buying from that store or platform, rather than from the individual business.

Question: How can we get a list of platforms that have been HMRC approved as being VAT-MOSS compliant?
Answer: They don’t approve platforms.

Question: What penalties are charged for late payment of the liability shown on the MOSS?
Answer: The penalties of the member state of CONSUMPTION (i.e. customer’s location), even if you’re registered for MOSS in the UK.
HMRC is acting as an agency on behalf of the authorities where the VAT is due. So if there are penalties, it is those states who are owed the VAT so they would apply their regime.[/vc_column_text][/vc_column][vc_column width=”1/3″][vc_column_text]

This is good news for nano businesses who use 3rd parties to sell and deliver their e-services. Those 3rd parties are responsible for complying, not you.

However, it makes sense for you to choose one that WILL comply – otherwise it could get messy.

Suggestion: write to your chosen 3rd party platform and ask them specifically how they comply with the requirements in 1.4 and 1.5 here.

[/vc_column_text][/vc_column][/vc_row][vc_row type=”in_container” bg_position=”left top” bg_repeat=”no-repeat” scene_position=”center” text_color=”dark” text_align=”left” top_padding=”11″][vc_column width=”1/1″][heading subtitle=”What Are The Penalties For Not Complying?”] [/heading][/vc_column][/vc_row][vc_row type=”in_container” bg_position=”left top” bg_repeat=”no-repeat” scene_position=”center” text_color=”dark” text_align=”left” top_padding=”11″][vc_column width=”2/3″][vc_column_text]

Question: What penalties are charged for failing to submit a MOSS return, even where it shows a NIL liability.
Answer: If genuinely no supplies, then no penalties. If you miss a return, you will be sent a reminder. If HMRC believes that tax SHOULD have been paid, they will notify the relevant member state for collection.

Question: How will this be policed for overseas merchants selling into Europe?
Answer: Since 2003 you had to register for the non-union (EU) VAT scheme. If a business is found to not be complying, then HMRC would go through the business’s tax authority to reclaim the VAT. This will be enforced more strongly. It will level the playing field for EU merchants.[/vc_column_text][/vc_column][vc_column width=”1/3″][vc_column_text]

CJ NOTE: Bottom Line: the penalties could be huge.
Just don’t go there!

[/vc_column_text][/vc_column][/vc_row][vc_row type=”in_container” bg_position=”left top” bg_repeat=”no-repeat” scene_position=”center” text_color=”dark” text_align=”left” top_padding=”11″][vc_column width=”1/1″][heading subtitle=”Other Questions”] [/heading][/vc_column][/vc_row][vc_row type=”in_container” bg_position=”left top” bg_repeat=”no-repeat” scene_position=”center” text_color=”dark” text_align=”left” top_padding=”11″][vc_column width=”2/3″][vc_column_text]

Question: How do you handle multiple VAT rates within a single country?
Answer: Taxamo & HRMC: Check them against the rates on the EU commission’s website.

Question: Do HMRC stand by the numbers of businesses affected by these changes? 34,000 – 42,000 in the UK?
Answer: HMRC: there has been some misunderstanding. That figure is referring to the number of registrations for MOSS that they believe will occur during the first year of the scheme.
They realise it affects a lot of other businesses, but platforms will take on responsibility in some cases, lowering the number of businesses needing to register for VAT-MOSS.
In recent weeks, they are aware that there are one or two sectors that, despite all the efforts they have put into reaching out, did not pick up the messages about MOSS and that some of these sectors have a lot of micro businesses in them.
We are going to do a lot, quickly, to communicate with these sectors, issuing much clearer guidance to help that sector in the coming weeks.

Question: Many very large organisations claim they didn’t find out about the VAT MOSS proposals until the media finally picked up on them earlier this week. What is the EU and HMRC going to do to get some of these intermediary marketplaces ready to deal with VAT by 1st Jan?
Answer: Communication with VAT-registered businesses began 18 months ago and were focussed on ‘obvious’ digital service sectors, such as gaming and e-publishing. They are going to do as much as they can to reach out to other sectors in the coming weeks.
HMRC will work with sectors to help them get ready in time, where it is obvious that they genuinely want to be compliant but are struggling to do so.

Question: How can I prove whether a transaction is B2B, rather than B2C?
Answer: You have to collect their VAT registration number or business bank details / other commercial documents. If you don’t have that information, then you have to assume it is a consumer and add VAT to that supply.

Question: The additional guidance from HMRC – where? When? How do we find it?
Answer: It was issued last Friday – on the Twitter Q&A – including their view on what was no or minimal human intervention. There isn’t a precise date on separating EU from domestic supplies, but it will be issued shortly.

If you have questions, please join the Digital VAT 2015 group on Facebook, please write to your MP, please tweet @HMRCGovUK.

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