.png)
.png)
As Wendy Bradley pointed out in Gathering no MOSS, the main problem with the VAT MOSS regime for electronic services is the lack of a de minimis turnover threshold that would allow micro-businesses to escape the rules.
However, there is another way in which micro-firms can avoid falling within the EU VAT rules. It requires a good understanding of how electronically supplied services may fall outside or inside of the definitions.
The EC guidance on the e-services rules states, “Electronic supplied services as referred to in Directive 2006/112/EC shall include services which are delivered over the internet or an electronic network and the nature of which renders their supply essentially automated and involving minimal human intervention, and impossible to ensure in the absence of information technology.”
HMRC interpret this as meaning that e-services are those delivered as a fully automated process with no or minimal human intervention. E-services that require more than minimal human intervention to be delivered will therefore fall outside of VAT MOSS.
So what is meant by “minimal human intervention”?
HMRC have apparently provided conflicting advice on this issue. This is a shame because the point could prove to be crucial for micro-businesses that are anxious about complying with the VAT MOSS rules.
In section 2 of Revenue & Customs Brief 46(2014), the guidance says a PDF emailed by the seller is not a digitally delivered service, meaning it would therefore fall outside of the rules.
Similarly, individually commissioned items, such as written articles or photographs, that are sent in digital form to the customer are not digitally delivered services for the purpose of the rules.
However, in a TAXAMO webinar in December 2014, featuring Andrew Webb of HMRC, included the example of a knitting pattern that had been ordered online.
Webb said sending the pattern as a PDF attachment via an email would qualify as a digital service. However, if the customer asked for further details, which required bespoke communication from the seller, this would take the service out of the scope of VAT MOSS.
The boundary between automated digitally delivered services and human intervention as part of an e-service is therefore quite hazy, and it will be up to the individual business to assess which side of the line they fall.
A micro-business that sells a few knitting patterns, photos or e-books online may decide it will not be caught by the VAT MOSS rules, as long as overseas sales require human approval by the seller and the products are dispatched by an individually written email to the customer.
Where an online shop is currently set up to provide automatic delivery to all customers, a tweak might be made to the website code to pause the process for overseas customers. This would allow a human to complete the next step, and may take the service outside VAT MOSS.
Perhaps there is a de minimis turnover after all. If the micro-business has such a low level of overseas sales that human intervention can easily be applied to each sale, those sales will be outside the scope of VAT MOSS.
If the volume of overseas sales grows to such a level that automation is required, then the business will have to register for VAT MOSS and pay the EU-wide tax.
Rebecca Cave is the author of Bloomsbury’s Tax Rates and Tables 2015/16, post-Budget/pre-election edition
