Smaller firms no longer obliged to charge VAT on domestic sales

11th December 2014 | News

The UK Government has agreed to tweak a controversial VAT ruling that thousands of UK business owners claimed was putting their livelihoods at risk.

New EU regulation, which was set for enforcement from 1st January 2015, would have forced UK businesses selling digital services – such as e-courses and e-books – across Europe to have to register for VAT in each individual nation they sell to.

The reasoning behind it was that VAT on digital products would be chargeable in the place of purchase as opposed to the place of supply.

Small business owners can register for a VAT ‘Mini One Stop Shop’ (VAT MOSS) by registering for VAT in the UK, which funnel the tax payments automatically.

Nevertheless, the seller would be liable for VAT domestically, even if they fell below the threshold.

But this week, HM Revenue and Customs (HMRC) has acknowledged that although micro firms must register for VAT in the UK to take advantage of MOSS, they will no longer be forced to charge UK VAT on domestic sales.

A spokesperson for HMRC said: “Businesses below the current VAT registration threshold that can separate their sales to UK customers from sales to EU customers can voluntarily register the cross border element of their business, and then use that registration number to register for MOSS.

“This means that their domestic sales will remain VAT free.”

The Office for National Statistics (ONS) estimates there are 460,000 sole traders operating in the UK and this move will at least give small business owners a little extra breathing space.