EU VAT reforms could see the UK businesses charging VAT in the country where their customers are located, a London accountancy firm has claimed.
The European Commission aims to extend the Mini One-Stop-Shop (MOSS) scheme, currently applicable to business to consumer sales of digital services only.
Alan Pearce, VAT partner at London-based accountancy firm Blick Rothenberg said the proposed change will be “by far the most significant change to the VAT system for UK businesses since the introduction of the tax in 1973”.
The EC also looks to extend the MOSS scheme to cover business to business sales of goods and services. Such sales are currently subject to a procedure known as the Reverse Charge, or ‘tax shift’.
Changes such as these would according to Pearce ‘widen the scope’ to cover almost all EU consumer goods and services, meaning that suppliers will charge VAT at the rate applicable in the customer’s country, but will account for it to the tax authority in the country where the supplier is established.
Pearce cites the example of a UK registered company selling to private consumers in France. Under the proposed EC changes, they will be responsible for charging French VAT but would still remit this to HMRC.
“These changes are in effect the transition to a definitive system where the principles adopted under the MOSS scheme are applied to all goods and services whether supplied B2C or B2B,” continued Pearce, who added that the measure will require all 28 EU tax authorities to run a ‘more expansive clearing system’ where VAT revenues charged in one EU Member State are passed from the supplier’s country to the customer’s country.
The measure is an attempt by the EU to combat cross-border VAT fraud. Estimations suggest that the VAT Gap currently stands at €170bn (£132bn), €50bn of which is cross-border VAT fraud.
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