15 Dec 2015 10:01 AM

With attractive tax breaks in the form of research and development tax credits, the UK and London in particular is attracting businesses in the technology and e-commerce sector. We have seen an influx of these businesses from Europe and the US in recent years especially in the last couple of years.

What many inward investors are not aware of is the change in VAT rules for place of supply for sale of digital supplies. From 1 January 2015, the VAT rules for place of supply changed in the EU for sales of digital services from businesses to consumers. The change did not affect business to business sales.

The main consequence of this change is that VAT is now due in each of the Member States in which telecommunications, broadcasting and electronically supplied services (TBES) supplies are made. Suppliers therefore have a choice. Either they can register for VAT in each Member State (up to 27 separate VAT registrations) or, they can elect to register under an EU-wide scheme known as the mini one stop shop (MOSS).

There are two separate MOSS schemes – one for EU based suppliers and one for non-EU based suppliers. Registration is voluntary but suppliers who choose not to register under MOSS are required to register for VAT in any Member State where they make a supply of TBES services to consumers. There is no de-minimus turnover threshold so, for suppliers preferring not to register under MOSS, they are required to register for VAT in a Member State, irrespective of the value of such sales in that state.

This of course poses a problem for a UK based small business or a subsidiary of a EU parent company who is not required to register for VAT as it falls below the de-minimus threshold for VAT registration (currently £82,000) but supplies to other EU countries where the threshold is much lower. In this instance, the UK based company has the choice of either registering in the UK for VAT and MOSS or registering in the local country where it makes a supply and pay VAT at the relevant rate in that country. Most are choosing to register for VAT in the UK and using the simplified MOSS reporting.

MOSS rules and reporting and its impact needs to be carefully considered by inward investing businesses. However, there are so many plus points about doing business in London and MOSS in itself should not cause major concern to investors.  At Alliotts, we have a dedicated team that deals with outsourcing, VAT and MOSS compliance and we provide guidance to businesses involved in TBES. Please contact me for more information about how we can help your business.