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How does Xero account for MOSS sales?

If you provide digital services to consumers in the EU, and have registered for HMRC’s MOSS scheme, you can set up Xero to record and report MOSS sales.

For further information about the MOSS scheme, refer our earlier blogs and to the HMRC’s website:

Register for and use the VAT Mini One Stop Shop

 

Set up MOSS tax rates

Add a separate tax rate for each EU member state where you make MOSS sales. Choose the tax type MOSS Sales. Use these tax rates on your invoices for MOSS sales so that these sales can be easily tracked and reported.

We recommend you name your MOSS tax rates in the format ‘MOSS + Country Name + Amount %’ so that they appear together in your tax rate list in Xero. For example, MOSS France 20%.

 

Image showing new tax rate set up for MOSS.

How do MOSS sales appear on the Xero VAT return?

Sales using a tax rate with a MOSS Sales tax type are not included in the Xero VAT return, but they are listed on the VAT Audit Report. We recommend you run the Account Transactions report to find your MOSS sales for your VAT MOSS return.

Run the Account Transactions report to prepare for your VAT MOSS return

If you are registered for VAT on the Cash basis, your MOSS sales appear in the VAT Audit report on the cash basis. Run the Account Transactions report to get a list of your MOSS transactions on the accrual basis for your MOSS return.

Run the Account Transactions report to prepare for your VAT MOSS return

You can run the Account Transactions report to find your MOSS sales for your VAT MOSS return.

Ensure that in Report Settings:

  • Under the General heading, you have selected Accrual for the accounting basis
  • Under the Display heading, you have grouped by VAT Rate Name
  • You have included the following columns:
    • Gross
    • VAT
    • VAT Rate

Image showing report settings.

Your report will display as follows.

Image showing Account Transactions report with VAT MOSS transactions.


Electronically Supplied Services and The EU VAT Changes #VATMOSS

Please see my blog on the EU VAT changes coming into force on 1 January 2015 and what it’s all about. 

This blog specifically addresses the definition of Electronically Supplied Services, as it is such a minefield. 

It may be worth checking out and joining the Digital VAT 2015 Facebook group, whose members are businesses from across the global discussing the issues surrounding how they will deal with the EU VAT changes. 

So this is the list of electronically supplied services provided by HMRC:

 

  • supplies of images or text, such as photos, screensavers, e-books and other digitised documents eg, pdf files
  • supplies of music, films and games, including games of chance and gambling games, and of programmes on demand
  • online magazines
  • website supply or web hosting services
  • distance maintenance of programmes and equipment
  • supplies of software and software updates
  • advertising space on a website

 

There is an even more detailed list at the bottom of this blog from the EC Explanatory Notes published 3 April 2014 (the full document can be viewed here).  HMRC has also created a handy table defining who is affected, and what supplies fall into the new rules.

This affects millions of micro-businesses, including “kitchen table” businesses who may only sell very small amounts of digital downloads per year, but they are still caught by the rules.  Examples might be sales of knitting patterns, ebooks, music by unsigned bands etc.

The best solution for any small business caught by the rules is to ensure that you are selling your digital services through a third party platform.  In which case the third party platform are responsible for implementing the new EU VAT rule changes.  Please refer to your third party platform for their guidance, and also keep up to date with this thread on the Digital VAT 2015 Facebook page: Responses from Third Party Platforms.

If this is not an option for you, then consider recoding your website so that it collects the correct data (see my earlier EU VAT guidance) necessary to comply.  Alternatively, use a third party add-on such as Taxamo or contact myself or Jon Leighton at iResources (ecommerce specialists).

 

Questions you may have:

 

1. What if I supply bundled or packaged services, and only a small part of this is a download?

This is a grey area, so you will need to seek specific advice from your accountant or HMRC, but if the download is a very small part of the package, and the package you provide to consumers has  “more than minimal human intervention or interaction” the new rules shouldn’t apply.

 

2. What if I am providing a subscription based SaaS (Software as a Service)?

You will be caught by the rules, unless you are providing human support and/or training, as above.

 

3. Where do I go to for more advice?

Have a look at my blog covering the main aspects of the new EU VAT Rules, and please get in touch if you want to discuss your specific issues further, but also look at these pages:

EUVATAction.org

Digital VAT 2015 Facebook page

HMRC Guidance

HMRC Mini One Stop Shop (VATMOSS)

Thank you for reading.  Remember, the above is only a guide, and you may need more specific advice and guidance.  Keep checking back for updates too.

 

Sharon Pocock FCCA

sharon@kinderpocock.co.uk

www.kinderpocock.co.uk

 

 

Extract from EC Explanatory Notes on the EC VAT Rule Changes, detailing electronically supplied services:

 

(1) Point (1) of Annex II to Directive 2006/112/EC:

Website supply, web-hosting, distance maintenance of programmes and equipment;

 

(a) Website hosting and webpage hosting;

(b) automated, online and distance maintenance of programmes;

(c) remote systems administration;

(d) online data warehousing where specific data is stored and retrieved

electronically;

(e) online supply of on-demand disc space.

 

(2) Point (2) of Annex II to Directive 2006/112/EC:

supply of software and updating thereof;

 

(a) Accessing or downloading software (including procurement/accountancy

programmes and anti-virus software) plus updates;

(b) software to block banner adverts showing, otherwise known as

Bannerblockers;

(c) download drivers, such as software that interfaces computers with peripheral

equipment (such as printers);

(d) online automated installation of filters on websites;

 

 

(3) Point (3) of Annex II to Directive 2006/112/EC:

supply of images, text and information and making available of databases;

 

(a) Accessing or downloading desktop themes;

(b) accessing or downloading photographic or pictorial images or screensavers;

(c) the digitised content of books and other electronic publications;

(d) subscription to online newspapers and journals;

(e) weblogs and website statistics;

(f) online news, traffic information and weather reports;

(g) online information generated automatically by software from specific data

input by the customer, such as legal and financial data, (in particular such

data as continually updated stock market data, in real time);

(h) the provision of advertising space including banner ads on a website/web

page;

(i) use of search engines and Internet directories

 

Point (4) of Annex II to Directive 2006/112/EC:

supply of music, films and games, including games of chance and gambling games,

and of political, cultural, artistic, sporting, scientific and entertainment broadcasts

and events;

 

(a) Accessing or downloading of music on to computers and mobile phones;

(b) accessing or downloading of jingles, excerpts, ringtones, or other sounds;

(c) accessing or downloading of films;

(d) downloading of games on to computers and mobile phones;

(e) accessing automated online games which are dependent on the Internet, or

other similar electronic networks, where players are geographically remote

from one another.

(f) receiving radio or television programmes distributed via a radio or television

network, the Internet or similar electronic network for listening to or viewing

programmes at the moment chosen by the user and at the user’s individual

request on the basis of a catalogue of programmes selected by the media

service provider such as TV or video on demand;

(g) receiving radio or television programmes via the Internet or similar electronic

network (IP streaming) unless the programmes are broadcast simultaneously

over traditional radio and television networks.

 

(5) Point (5) of Annex II to Directive 2006/112/EC:

supply of distance teaching.

 

(a) Automated distance teaching dependent on the Internet or similar electronic

network to function and the supply of which requires limited or no human

intervention, including virtual classrooms, except where the Internet or similar

electronic network is used as a tool simply for communication between the

teacher and student;

(b) workbooks completed by pupils online and marked in an automated fashion

without human intervention.


EU VAT Rule Changes #VATMOSS

What is it?

A new EU ruling which will come into force on 1 January 2015, requiring any business selling digital services to EU consumers to charge VAT based on where the consumer is based (instead of previously where the supplier was based).

This ruling is changing all the time – the latest HMRC update is dated 29 December, so keep checking back for updates.  So, lets see what it’s all about:

Who is affected?

Any business that sells digital services to EU consumers (not businesses, but private consumers, including charities and public bodies)

What is a digital service?

HMRC has a full list of what is covered, but the 3 main categories are:

  • Radio and television broadcasting services
  • Telecommunications services
  • Electronically supplied services (more on this here)

 

What are electronically supplied services?

So this is the grey area, but includes e-services which are automatically delivered over the internet, or an electronic network, where there is minimal or no human intervention. In practice, this can be either:

  • where the sale of the digital content is entirely automatic eg, a consumer clicks the ‘Buy Now’ button on a website and either:
      • the content downloads onto the consumer’s device
      • the consumer receives an automated e-mail containing the content

 

  • where the sale of the digital content is essentially automatic, and the small amount of manual process involved doesn’t change the nature of the supply from an e-service

All ‘e-services’ that are ‘electronically supplied’ in the ways outlined above are ‘digital services’ and are covered by the rule changes.

HMRC have produced a handy table which shows examples electronically supplied services, and whether they are covered by the rules or not.

What Sales Are Not Covered By The New Rules?

If you are using the internet just to communicate with your customers, the rule changes to not apply to you.  Here is more information from HMRC on sales not affected.

So What Do You Need to Do?

So the easy bit might be determining whether the rules apply to you.  The difficult bit is how to administer the new rules, and how to charge VAT to your consumers in the EC.

1.  Determine whether your customer is in business, or is a consumer:

  •  If they have a VAT number (VRN) then you can assume they are in business (keep a record of their VAT number).
  • BUT they may be in business, but not registered for VAT – in that case, take another piece of evidence as proof – eg a link to their business website, a copy of their business insurance etc (keep this safe).
  • More information can be found here from HMRC.

2.  If they are a consumer – you must determine the place of supply:

  • This is normally where the consumer lives.
  • You can make certain presumptions based on where they are ordering from (eg IP address, phone number etc)
  • If you cannot make these presumptions, then you need 2 pieces of proof of the place of supply.
  • This can be their address, IP address, bank details etc.

**If you use a payment provider, in most cases, they should be doing this for you.  Check this Facebook thread for responses from many third party platforms.

3.  Charging the Correct Amount of VAT

OK – the tricky bit!  Now that you know where your customer is based, you now have to charge the correct rate of VAT, and declare this to the right EU countries.

If you are selling digital services, you will have a website, and some kind of ecommerce solution to make your automated sales.  My very serious advice to you would be to speak to your ecommerce provider and get this VAT bit automated too.

We work really closely with Jon Leighton of iResources who is an ecommerce expert.  We are currently trialling Taxamo together, which should do all of your VAT calculating for you, including identifying where your consumer’s place of supply is.  It will also integrate with your current ecommerce platform and hopefully into your accounting system (watch this space).

If you use an online accounting solution like Xero, we can set up EU VAT rates for the EU countries you need to charge VAT to.

4.  Declaring the VAT

This is where the VAT MOSS comes in or Mini One Stop Shop, set up by HMRC.  Instead of registering for VAT in every single EU member state, you can sign up once via the MOSS, and make one quarterly declaration.

 

So that’s it, but I think you will have some questions:

1. What is the registration threshold for EU VAT.

There is no threshold, if you only sell £1 of digital services you still have to sign up.

2.  If I register for VAT MOSS do I have to add VAT to all of my UK sales

No – you will only have to declare VAT on EU digital sales, not UK sales.

3. What if I haven’t signed up by 1 January 2015?

Don’t panic – HMRC have now decided on a soft launch, meaning that you just have to register by the 10th day of the month following your first digital services supply.

4. Where can I find out more?

There is lots of help out there – ask us – but also keep an eye on these groups and websites:

EUVATAction.org

Digital VAT 2015 Facebook page

HMRC Guidance

HMRC Mini One Stop Shop (VATMOSS)

You can also email HMRC directly if you have specific questions about your need to register: Vat2015.contact@hmrc.gsi.gov.uk

Phew – this is a heavy topic – apologies for the long and involved blog.  Please get in touch if you would like more specific information.

 

Sharon Pocock FCCA

sharon@kinderpocock.co.uk

www.kinderpocock.co.uk