Value Added Tax (Place of Supply of Services) (Supplies of Electronic, Telecommunication and Broadcasting Services) Order 2018
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The Financial Secretary to the Treasury (Mel Stride)
I beg to move,
That the Committee has considered the Value Added Tax (Place of Supply of Services) (Supplies of Electronic, Telecommunication and Broadcasting Services) Order 2018 (S.I., 2018, No. 1194).
It is a pleasure to serve under your chairmanship once again, Mr Hosie. The order implements changes to article 58 of the EU VAT directive by amending the UK’s VAT place of supply rules. It introduces an annual £8,818 threshold below which, where a UK business makes cross-border supplies of certain digital services to private EU consumers, the deemed place of supply will be the United Kingdom.
It may be helpful if I set out the background to the order. In January 2015, suppliers of digital services to EU consumers were made liable to account for VAT in the member states in which their customers are located, not those in which the supplier is based. Traders of digital services therefore needed to register in each member state in which their customers were located, irrespective of the value of their sales. To mitigate the administrative impact of those changes, the VAT mini one-stop shop—MOSS—accounting simplification scheme was introduced, which made it possible for businesses to register in one member state and account via that single registration for VAT due throughout the EU. UK businesses trading below the VAT registration threshold therefore needed to register for VAT in the member states in which they made supplies, register for VAT in order to join the VAT MOSS scheme, or decide not to supply to private EU consumers. In December 2017, vital easements to these rules that the UK had pushed for were agreed to by EU Finance Ministers. The order implements one such change, further simplifying VAT accounting and easing the administrative burden on small traders.
The UK remains committed to simplifying the tax system to support small businesses. UK businesses that sell digital services to EU customers below a turnover value of £8,818 in the current and preceding calendar year can treat the UK as the place of supply for those sales, which will therefore be subject to UK VAT rules. UK businesses that have a turnover below the UK VAT registration threshold and that make digital sales to private EU customers below the cross-border sales threshold will not have to register for VAT unless they choose to do so. This will be of great benefit to small businesses, reducing their running costs as well as making them more competitive since they do not have to comply with an additional obligation.
The order will allow UK businesses under the new threshold to choose to keep the place of supply in the EU member states in which their customers are based and account for VAT using the MOSS system or register in the relevant member states. To do so, they must notify HMRC. This treatment will apply from the date of election until the end of that year and for the following two full calendar years, allowing businesses the scope to choose the best option for their circumstances. The changes to the VAT digital services rules are welcomed by businesses and were lobbied for by the UK.
The order is expected to have a positive impact on approximately 1,100 businesses—around 50% of UK businesses using MOSS—that fall below the threshold. HMRC has produced guidance updates to reflect the introduction of the proposed changes, which will take effect from 1 January 2019 and which the UK has pressed for at EU level. The order updates UK law in line with the European VAT directive and simplifies the VAT rules for the trade of digital services for our smallest businesses. I commend it to the Committee.
Mel Stride
I thank both hon. Ladies for their contributions and questions, which I will endeavour to address as comprehensively as I can. On VAT MOSS and whether there have been discussions with online platforms—I think that was expression used by the hon. Member for West Ham—most of the businesses to which the statutory instrument will be relevant will be, by definition, fairly small. They tend to trade more directly than through online platforms. I assure the hon. Lady that there was a four-week consultation on the statutory instrument, and there was only one response, which related to a typo in the draft legislation.
The hon. Member for West Ham asked perfectly reasonably about the cost of dealing with VAT. We see the order as a relieving measure and estimate that the 1,100 businesses that are likely to benefit from the change will save, on average, about £260 per year, largely on their own administration costs. She also asked specifically about businesses that would not have to register for the VAT MOSS approach but that might be below the £85,000 VAT registration threshold. I do not have a specific figure but I am happy to look into that further and write to her.
The hon. Lady also asked about the net effect of these changes for the United Kingdom and the EU27 member states. Again, I do not have that to hand. Unless it comes to me very quickly—[Interruption.] It has not. How disappointing it is to get a note that does not have what you would like in it, but there you go. I am of course very happy to look at that and see what information I can establish. On the specific issue of the potential uprating of the threshold, neither I nor my officials are aware of any proposed uprating, but if that is the case I will certainly let the hon. Lady know.
The hon. Lady and the hon. Member for Lanark and Hamilton East both made various points about Brexit and timetables and asked what will happen in the various deal and no-deal circumstances. We are confident that there will be a deal and that we will therefore move into the implementation period from the end of March until the end of 2020. Under those circumstances, the draft order will have relevance and the arrangements it makes will benefit small businesses up and down the United Kingdom. On that basis, I commend the order to the Committee.
Question put and agreed to.