Changes and Simplifications
UK businesses trading with the EU should be aware of changes to EU VAT rules from 1 July 2021. Schemes will be introduced that could simplify matters for UK businesses and assist with the new rules.
These schemes are known as One Stop Shops (OSS) and will allow businesses to pay and account for EU VAT via an electronic portal, without the need for multiple EU VAT registrations in each member state that they operate in.
Some UK businesses may already be familiar with the concept because of the Mini One Stop Shop (MOSS), which was introduced to assist with the taxation of Digital Services to EU Customers as far back as 2015.
Changes to the MOSS scheme are set out below along with how the extended OSS mechanism can now be used to account for VAT on other supplies.
In particular, the comments at point three below, in respect of the introduction of the Import One Stop Shop (IOSS), may be of most use to UK businesses.
1. Services to Consumers – The Non-Union One Stop Shop
The MOSS was introduced when the ‘Place of Supply’ in respect of digital supplies to consumers was changed in 2015 so that VAT became due in the countries where the individual customers lived.
The MOSS is no longer available to UK businesses after the UK’s exit from the EU. However, UK businesses are now able to sign up for a similar Non-Union OSS (in the same way that a US or Australian business were able to use that scheme prior to Brexit).
Without the ability to sign up to the Non-Union OSS , a UK business providing ‘digital supplies’ would need to register for VAT in every EU Member State that its customers live. For more details on the need to set up a Non-Union OSS registration click here.
The Non-Union OSS – Changes
From 1 July 2021, the Non-Union OSS is extended beyond digital supplies to include other types of service supplied to consumers by a non-EU established business, where the ‘place of supply’ is deemed to be in the EU.
This will include services such as admissions to cultural or sporting events, transport services, services relating to immovable property and the hiring of means of transport (amongst other services).
2. Distance Sales – The OSS
Prior to 1 July 2021, if an EU business supplied goods to a consumer that lived in another EU Member State then that business would charge its own country’s VAT on the sale until its sales to its customer’s Member State exceeded the ‘Distance Sales Threshold’ (usually either €35,000 or €100,000 depending on the Member State that the customers lived in) at which point the business would be required to register for VAT in its customer’s Member State and charge local VAT.
From 1 July 2021, the ‘Distances Sales Thresholds’ are being withdrawn and replaced by a single new EU wide threshold of €10,000.
If not for the ability to use the OSS portal to account for the local VAT due, then all but the smallest of EU business would need to register for VAT in each Member State to which it supplies goods to consumers.
From 1 July 2021, an EU business can use the OSS to account for the local VAT due on the sale of goods to consumers located in other Member States.
This may also benefit UK businesses if they already have an EU VAT registration or hold a stock of goods in a particular EU Member State.
So, for example, a UK business that has a distribution hub within an EU Member State (such as the Netherlands) may be able to benefit from the OSS so that it does not need to register for VAT in other Member States but can account for all of the VAT due on its ‘Distance Sales’ through its OSS registration.
3. Removal of the Low Value Consignment Relief – The Import One Stop Shop
The EU is to remove the €22 Low-Value Consignment Relief, which previously meant that Low-Value Consignments of goods into the EU did not attract import VAT.
The EU has been concerned that parcel operators and e-commerce suppliers have been undervaluing import declarations so that EU VAT is not accounted for.
Whether a business has to register for VAT in another EU Member State when it supplies goods will depend on the ‘incoterms’ on the import declaration setting out who is responsible for the VAT (and duty if appropriate) due.
If a business supplies goods on the DAP basis (Delivered at Place) then currently it is the customer who is responsible for accounting for any EU VAT.
This can be a nasty surprise for individuals who have bought items via the internet and then face an additional charge from the delivering courier that they had not expected. This can also be a barrier to trade.
The Import One Stop Shop (IOSS)
From 1 July 2021 a UK supplier of goods where the consignment value is less than €150 supplied on a DAP basis has the following choices:
- To let its customer account for the local VAT due when the goods are delivered (though see the comment below about solutions provided by courier firms).
- To change the incoterms so that it is deemed to be the importer of the goods making supplies in the EU Member State (registering for VAT there – which could enable it to use the OSS in respect of onward supplies to other EU Member States).
- To register for the IOSS to enable it to account for local VAT on sales to EU customers.
The advantage of the IOSS scheme is that the customer does not pay the VAT and is, therefore, less likely to reject the goods whilst the correct amounts of EU VAT is accounted for.
The IOSS rules may mean that in some circumstances where goods are sold via an ‘electronic interface’ or an ‘online marketplace’ that the marketplace becomes a ‘deemed supplier’ and needs to account for the EU VAT itself via its own One Stop Shop registration.
This will mean that if a UK business supplies its goods via someone else’s website that it will need to have conversations with that business to determine how the supply will be taxed and who is responsible for it.
It may also be worth noting that some courier firms are providing a service (albeit at a cost) whereby they pay the VAT incurred on the customer’s behalf out of the funds collected by the UK supplier.
This may be appropriate as long as the EU Tax Authorities do not consider that the goods have been undervalued on the import entry into the EU.
It is also possible that this courier-based solution may cause difficulties in terms of accounting, as the VAT rates in different Member States differ.
Further Assistance through our International Network
Milsted Langdon is part of MGI Worldwide, an international network of accountancy firms and tax advisors, and so where a UK business requires assistance registering for the EU OSS regime or wants further advice in respect of its EU Tax obligations and/or EU VAT registration position, then a referral can be made so that assistance can be provided. For more information contact our VAT team at VAT@milstedlangdon.co.uk