Brexit will have a major impact on digital businesses both in the UK and outside, particularly when it comes to accounting for and reporting VAT.
The result of the United Kingdom election on Thursday, December 12, 2019, means that it is now very likely that the UK (in a worst-case scenario) will leave the European Union (EU) on January 31, 2020. This event will bring to an end the Brexit process that started on Thursday, June 23, 2016, when the UK’s citizens voted by a margin of 52% to 48% to leave the EU.
The agreed date of Brexit is January 31, 2020, but a transitional period should apply up to December 31, 2020. This means the EU's VAT MOSS system will still be available in the UK.
Let's look at what may happen without a transitional period.
Firstly, Brexit presents a series of issues for UK digital businesses and digital businesses registered with the UK’s VAT Mini One Stop Shop (MOSS) service. Later we will assess the likely impact on non-UK digital businesses selling to customers in the UK, soon to be a non-EU member state.
Digital businesses registered with UK VAT MOSS
If the UK leaves on January 31 - without a transitional period (which is unlikely) - then UK-based digital businesses and those non-EU digital businesses currently registered for VAT MOSS purposes with the UK will have to plan accordingly. The official rubber-stamping of the Withdrawal Agreement will lead to a transitional period that ends on December 31, 2020. This is the date when the UK officially leaves the EU. However, exemptions apply for cross-border VAT refunds and amendments to VAT MOSS.
As this helpful BBC article explains: “During this period, the UK's trading relationship with the EU will remain the same while the two sides negotiate a free trade deal. At the same time, many other aspects of the UK's future relationship with the EU - including law enforcement, data sharing and security - will need to be agreed.”
The VAT MOSS service is used to declare VAT due on sales to EU-based customers and to remit the VAT to the relevant tax authority. VAT MOSS is a special registration scheme that was introduced in January 2015 when the EU amended its rules on how cross-border B2C digital supplies were to be taxed in the member state of consumption. The MOSS allows a taxable person to submit a single return for each calendar quarter to the Member State of identification (in this case the UK).
As the UK is very likely to be a non-EU member state from January 31, 2020, digital businesses will not be able to use the UK’s VAT MOSS service.
Thankfully, HMRC has already issued advice on what to do. This advice includes the following:
The final return period for the UK’s VAT MOSS system will be the period ending March 31, 2020: the end of the first calendar quarter. Note that digital businesses registered with UK VAT MOSS should only include sales made before Brexit (i.e. January 31, 2020) in their final return. According to the HMRC advice, these businesses will be able to use the UK’s VAT MOSS system to:
- submit their final return by April 20, 2020
- amend their final return until May 15, 2020
- update their registration details until May 15, 2020
- view their previous returns
For sales made after Brexit, these businesses will need to register for either:
- VAT MOSS in any EU member state (effectively changing your MOSS identification country) by the 10th following the month of their first sale (i.e. 10th of March if sales in February)
- Register for VAT in each EU member state where they sell digital services to consumer
Let’s take an example of a digital business registered for UK VAT MOSS that then opts to register in Ireland for their sales after January 31, 2020. The business will have up to March 10 to register for MOSS in Ireland.
At the end of the first quarter, they will have two VAT MOSS returns to file by April 20, 2020.
- One in the UK for their sales up to January 31, 2020.
- One in Ireland for their sales from February 1 to March 31, 2020.
For the following quarter, they will only have to file VAT MOSS returns in Ireland.
Digital businesses selling into the UK
The UK Government provides advice in this scenario stating: “You must register and pay VAT in the UK as soon as you supply any digital services to a UK consumer.”
It is important to note that the existing VAT MOSS threshold of €10,000, importantly, would not apply as the UK will be a non-EU member state.