How to account for your VAT on digital services as a UK company from January 2021

How to account for your VAT on digital services as a UK company from January 2021

Following the UK becoming the first-ever EU member state to officially leave the single market on 31st December 2020, many businesses will be forced to reconsider their trade operations, and especially how they account for their VAT on digital services. Thankfully, with the last-minute settlement of a Brexit EU-UK trade deal, this confirmed an unprecedented tariff-free relationship moving forward between the UK and EU across however, VAT will still be accountable regardless of this. So this now begs the question for many companies – How will the way we account for VAT change in 2021?

Accounting for VAT on digital services in Europe – Mini One Stop Shop Scheme (MOSS)

For many who operate and sell digital services all over Europe, the VAT Mini One Stop Shop (MOSS) scheme has been a time saver since it began in 2015, and utilising the UK’s HMRC, seemed like a good choice as an anchor location (especially for those with operations inside the UK). However, from midnight on 31st December 2020, the UK became the first country to officially leave the EU and meant that many needed to alter their trade operations. Where before the UK had been a member state, and so would have operated through Union VAT MOSS, by leaving the EU, it will force companies who are subject to taxation, to change tack on how they may have been accounting their VAT.

What is the VAT Mini One Stop Shop (MOSS) Scheme?

The VAT Mini One Stop Shop scheme allows taxable persons who supply digital telecommunication services to non-taxable persons within any member states of the EU, to account for their VAT on all services supplied in the member state that they are operating from. It allows businesses who supply services to several member states to avoid having to register for VAT in each member state that they are applying to, and instead just register under one jurisdiction.

Services covered under the VAT MOSS include;

  • Website hosting
  • Supply of software
  • Access to databases
  • Downloading apps or music
  • Online gaming
  • Distance teaching

Union VAT MOSS vs Non-Union MOSS

To be able to use the Union VAT MOSS scheme your business must:

be registered for VAT in that location:

  • Supply digital services to consumers where the place of supply is in an EU member state

To use the Non-Union VAT MOSS scheme, your business must:

  • Be based outside the EU
  • Have no fixed or business establishments in the EU
  • Supply digital services to consumers in the EU

Considering the above, where the UK would have previously been a member state, after leaving the EU at the end of 2020, this now means that all those previously using their headquarters or branches in the EU as their anchor location for the VAT MOSS scheme, will now either have to reregister under the non-union VAT MOSS route or, if your business is fortunate enough to have branches or office locations in Europe, move your VAT MOSS anchor to one of your European locations.

MOSS Registration

VAT MOSS registration must be made within 10 days into the first month after you’ve made the sales (for example, if your first sale of digital services is on 8 January, you must register by 10 February. Your VAT MOSS registration will be backdated to the date of your first sale – in this example, 8 January). Those who were previously submitting their returns under the UK’s HMRC will have 1 month and into the new year to reroute their registration to the more applicable, Non-Union VAT MOSS route. For guides on how to properly complete your non-union VAT MOSS Return, check out the Government Guidance.

Accounting for your VAT in the UK

Because the UK is now no longer an EU member state, this means that all VAT filings for digital services provided to UK customers, cannot be covered under the VAT MOSS scheme, as mentioned above. If your company is located outside the UK and plans to continue supplying digital services in the UK, it will need to register with the HMRC directly to be able to effectively file VAT returns on applicable services. To find out more on how to fill in and submit your VAT Return, check out the Government Guidance.

How can Animo help?

Our expert consultants are well versed across a number of issues concerning tax and VAT, and with offices in both the UK and the EU, we have the knowledge to confidently advise on best practices for your business. Furthermore, with our offices in Dublin and Cyprus, we can provide fantastic alternate anchor location opportunities for the VAT MOSS scheme.

With time running out on when businesses need to register for the Non-Union VAT MOSS scheme, it is imperative to take action promptly, to be able to continue reaping the benefits. Get in contact with us today by calling us on +44 (0)207 060 0835, emailing us at info@animoassociates.com, or filling in a contact form below, where one of our specialist advisors will be happy to guide you through this process.

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