VAT and Brexit: what next for digital businesses?

Brexit is having a major impact on digital businesses both in the UK and outside, particularly when it comes to accounting for and reporting VAT. Some critical decisions will have to be made before the end of 2020 by businesses currently registered for VAT purposes in the UK.

The actual date of Brexit was January 31, 2020, but a transitional period applies until December 31, 2020. This means the EU's VAT Mini One Stop Shop (MOSS) system is still available in the UK and the EU's B2B number validation system is still available.

However, because of Brexit there are a host of issues for UK digital businesses and for non-UK digital businesses that are registered with the UK’s VAT MOSS service. After December 31, 2020, the EU's B2B number validation system will no longer be available. Also, the UK's VAT MOSS system will cease to exist therefore business-critical decisions need to be made very soon.

New UK VAT number validation service is now available

In early December 2020, the UK Government revealed its new UK VAT number validation service. This service has been introduced as UK VAT numbers will no longer be validated using the EU's VAT Information Exchange System (VIES). The UK VAT number validation service can be used to check:

• If a UK VAT registration number is valid
• The name and address of the business the number is registered to

The UK Government guidance is that "if you are a UK VAT-registered business, you can also use this service to prove when you checked a UK VAT number".

Digital businesses registered with UK VAT MOSS

The official rubber-stamping of the Withdrawal Agreement has led to a transitional period that ends on December 31, 2020, during which the UK is still part of the EU VAT system.

UK-based digital businesses and non-EU digital businesses currently registered for VAT MOSS purposes in the UK have to plan accordingly for when this transitional period ends.

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 so that cross-border B2C digital supplies are 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 transitional period ends on December 31, 2020, digital businesses will not be able to use the UK’s VAT MOSS service any longer.

HMRC has issued guidance on what to do. This includes the following:

The final return period for the UK’s VAT MOSS system will be the period ending December 31, 2020. Note that digital businesses registered with UK VAT MOSS should only include sales made before January 1, 2021, in their final return. According to the HMRC guidance, these businesses will be able to use the UK’s VAT MOSS system to:

• submit their final return by January 20, 2021
• Amend their returns until 11pm on January 20, 2022
• update their registration details until December 31, 2024
• view their previous returns

For sales made after the transitional period, these businesses will need to register for either:

• VAT MOSS in any EU member state (effectively changing the MOSS identification country) by the 10th following the month of their first sale (i.e. February 10 if sales in January) to an EU customer (this registration cannot be made before January 1, 2021), or
• Register for VAT in each EU member state where they sell digital services to consumers, noting that the digital services sales threshold will no longer apply.

Let’s take an example of a digital business registered for UK VAT MOSS that then opts to register in Ireland for their sales made in January 2021 and onwards. The business will have up to February 10, 2021, to register for MOSS in Ireland.

At the end of the first quarter, it will have to file the Irish MOSS return for sales from January 1 to March 31, 2021, by April 20.

Digital businesses selling into the UK

The UK Government has provided guidance 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 would not apply as the UK is not an EU member state. More information is available here.

PLEASE REMEMBER THAT THIS INFORMATION HAS BEEN PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND IS NOT PRESENTED AS SPECIFIC TAX OR LEGAL ADVICE. ALWAYS CONSULT A QUALIFIED TAX OR LEGAL ADVISOR BEFORE TAKING ANY ACTION BASED ON THIS INFORMATION. VERTEX INC. ACCEPTS NO LIABILITY FOR ANY LOSS RESULTING FROM ANY PERSON ACTING OR REFRAINING FROM ACTION AS A RESULT OF THIS INFORMATION.