We are responding to the consultation entitled VAT: Mini One Stop Shop Consequential amendments to the VAT Regulations 1995 (SI 1995/2518).

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1 Ref: ITX 1 September 2014 Andy Heywood HMRC, VAT Supply Policy Team, Indirect Tax Directorate, 3rd Floor, 100 Parliament Street, London, SW1A 2BQ. via andrew.heywood@hmrc.gsi.gov.uk Dear Mr Heywood Mini One Stop Shop ( MOSS ) We are responding to the consultation entitled VAT: Mini One Stop Shop Consequential amendments to the VAT Regulations 1995 (SI 1995/2518). Introduction As the consultation document notes, these regulations deal with issues that arise from 1 January 2015 in relation to the MOSS. There are two types of amendments to the regulations Those that deal with businesses established in the UK, who start making supplies of digital services 1 to consumers in the other member states that opt to use the MOSS to account for VAT on such services; Amendments to the existing electronic services scheme that allows businesses not established in the EU to register for VAT in one EU member state (in this case, the UK) in order to account for VAT on digital services to consumers in any of the 28 Member States. These amendments are consequential on the extension of the nature of services to which the scheme applies. Summary of our views 1 Telecommunication, broadcasting and electronic services

2 In the main, the provisions are administrative and largely uncontroversial and probably need no change. However, the legislation is complex even though it is intended to be a VAT accounting simplification. Accordingly, most businesses will need comprehensive guidance on how to register and then account for VAT. We discuss this below. Further, because the new rules are a complete departure from the old, it is likely that many people affected will not have realised that they need to consider their position. It is thus important that thought be given to how to ensure that affected businesses do understand their responsibilities well before the legislation takes effect. The consultation deals with the regulations implementing the legislation provided for in VATA 1994, Schedules 3B (amended) and 3BA. However, during the course of seeking input from our members two other issues were raised with us The problem with UK businesses not required to be registered for VAT; Input tax recovery in member states where supplies accounted for using the MOSS take place. We deal with these issues as well in the submission. The UK portal As noted, the regulations are largely uncontroversial. Nevertheless we expect that UK established suppliers of digital services to consumers in other member states will need comprehensive guidance on their obligations to account for VAT. HMRC has already published some guidance eg Information Sheet 5/14 but that refers to no fewer than five other information sheets and included in them is reference to the explanatory notes published by the Commission (22 pages). It would be unfair to expect small and medium businesses with minimal activity in other member states to read all that guidance. Instead a single comprehensive set of guidance needs to be produced dealing with key issues. Key issues will include As the scheme is optional, advising taxpayers of the consequential issues that arise eg the fact that they might lose their turnover exemption (discussed below) and the fact that they might have to recover VAT in other member states using the VAT refund procedure; Since VAT has to be accounted for at the rates applicable to the member state in which the services are supplied, guidance on the applicable rates at a time when they can take it into account in setting charges; Guidance on what is regarded as a digital service in each member state; Guidance on what the system will look like (screen grabs etc) and illustrative examples to ensure that businesses can make an informed choice as to whether the MOSS is the right solution to their compliance needs; The need under MOSS that adjustments be made through amendment of the original return rather than by voluntary disclosure. One issue that concerns us is the reference in the legislation to VATA 1994, s80a(1), which covers the reimbursement arrangements needed where there may be unjust enrichment. Because the supplies will all be B2C supplies, we cannot conceive of many occasions in which unjust enrichment might occur. We also note that because P/tech/subsfinal/ITX/2014 2

3 what is being dealt with is VAT due to other EU member states and not VAT due to the UK, it would be anomalous to apply UK rules to foreign VAT. It also appeared to us from input received that some members may not actually be aware of the fact that the exclusion from the requirement to be registered for VAT under VATA 1994, Schedule 1 only applies to turnover in the country where a business is established. Accordingly, supplies made in other member states, no matter how small, are subject to VAT and the supplier must therefore either register for VAT in the member states in which such supplies are made or use the MOSS. It seems to us that it is important to make clear that there is no turnover threshold for MOSS supplies. Issue concerning operation of the scheme Given the limited range of services affected, it might appear that very few small and medium businesses will be affected but our attention has been drawn recently to one issue relating to small business. We are aware that the issue was raised by ICAEW members as well. The concern expressed is that a small UK business that carries on digital services both in the UK and in one or more member states and is not registered or required to be registered for VAT, might have to choose among the following alternatives, Registering for UK VAT and thereby forfeiting the benefit of the turnover exemption in Schedule 1 of VATA 1994; Not registering for UK VAT but then having to register for VAT in each and every member state where it provides digital services no matter how small their value because the turnover exemption only applies in a business s country of establishment; Ceasing to operate elsewhere because the compliance costs of registering in other member states would be too great. We agree that on a proper analysis of the relevant UK legislation, a person established in the UK who wants to use the scheme must be registered for VAT in the UK under Schedule 1 (see Schedule 3BA para 4(1)(d)). The consequence of this requirement is that because under UK legislation any supplies a person registered for VAT in the UK makes are taxable supplies unless they are exempt from VAT under VATA 1994, s31, is that a small business that is not required to be registered for VAT because its turnover does not exceed the threshold, would lose the benefit of non-registration. This could mean having to account for VAT exceeding 13,000 in order to be able to account for VAT in other EU member states. The requirement to be registered under Schedule 1 is included in the UK MOSS legislation in order to implement EU requirements that a person who opts to use the scheme must have a VAT Identification Number (VIN) issued by the member state in which it is established. Except for persons entitled to recover VAT under VATA 1994, s26(2)(b) and (c), it is unlikely that a person not intending to make taxable supplies in the UK at some point in time would be entitled to register for VAT under Schedule 1. If one examines EU legislation, the issue of who is a taxable person and the issue of a VAT identification number are two separate albeit related issues. P/tech/subsfinal/ITX/2014 3

4 Thus, article 9(1) of the PVD defines a taxable person as anyone undertaking an economic activity. Accordingly, a person who undertakes an exempt supply is still a taxable person. Separately, article 214 makes provision for the identification of taxable persons. The wording of that article allows member states not to identify (and therefore not to register) taxable persons who are not entitled to deduct VAT (eg because they make exempt supplies). However, the wording does not prohibit the identification of a taxable person that makes exempt supplies and indeed as noted above, in some cases a business needs to register for VAT even though it makes no taxable supplies (using either the UK or EU definition). The effect of Schedule 1 of the UK VAT legislation is to effectively exclude a person that is not registered or required to register for VAT from being regarded as a taxable person. However, this is not what Title XII Chapter 1 of the PVD provides. This Chapter provides for two types of relief for small business A turnover exemption Graduated and other relief. It should be noted that the provision does not exclude the person from being a taxable person; it simply allows member states to either exempt the turnover of small businesses from VAT or to apply alternative relief. In our view, it would therefore be possible for a person to be issued with a VAT number for the purposes of registering for the MOSS without that impacting on UK supplies. Our conclusion is therefore that the UK can and should make provision that would allow a small UK business that is entitled not to be registered under Schedule 1 to nevertheless be issued with a VIN for the purposes of using the MOSS provided that overall his or her circumstances are such that he or she should be regarded as a small business. VAT deductions Persons supplying digital services and accounting for VAT through the MOSS do not have to register for VAT in other member states unless they make other supplies that take place there. They will therefore not have a VAT return on which to reclaim any input tax incurred where the supplies take place. Instead, they will have to recover any VAT due through the VAT refunds portal. People in the non-union scheme will presumably have to make Thirteenth Directive claims. It is important to point this out to businesses in the UK because it will affect whether or not they choose to use the scheme. For example, consider a trader that makes supplies of digital services in the UK and the Republic of Ireland. If he registers under the MOSS he has to make three returns (UK VAT, UK MOSS and UK VAT refunds portal). If instead he registers only in the ROI (and possibly does not register in the UK if the turnover threshold is not met), he makes a single Irish VAT return. We would question here whether having to file three returns as opposed to one is really a simplification and businesses need to be alert to the possibility that the scheme may not be a simplification for them. P/tech/subsfinal/ITX/2014 4

5 Conclusion The scheme looks simple and so it should be. However, our analysis of what the regulations say suggest that it may be more complex than first appears and therefore a comprehensive programme to ensure people know of and understand their obligations is required. We would be happy to meet with you in order to discuss the scheme s operation. We have discussed some of these points with the ICAEW and they share some of our concerns. It may be worth considering a meeting of interested bodies to explore what needs to be done. Yours sincerely Simon Newark Chairman, Indirect Taxes Sub-Committee cc: The Chartered Institute of Taxation The Chartered Institute of Taxation (CIOT) is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it taxpayers, their advisers and the authorities. The CIOT s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer. The CIOT draws on our members experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work. The CIOT s 17,000 members have the practising title of Chartered Tax Adviser and the designatory letters CTA, to represent the leading tax qualification. P/tech/subsfinal/ITX/2014 5