This article explains what VAT MOSS is, how it’s handled in FreeAgent and how to get the information you need to submit your quarterly VAT MOSS return to your chosen tax authority.
An introduction to VAT MOSS
VAT MOSS is an abbreviation of VAT Mini One Stop Shop. It’s an option offered by tax authorities for businesses affected by rules relating to the supply of certain digital services to consumers in the European Union (EU).
Since 2015, any business that supplies certain digital services to consumers in the EU has had to charge those consumers VAT at the local rate in the country where the consumer used the service.
The affected supplies are services that are supplied digitally with minimal or no human intervention at the point of sale, such as apps and PDF documents. HMRC provides a full definition on its website.
Only supplies of digital services to individual consumers in the EU are affected by this rule. Supplies to businesses are not affected.
Setting up for VAT MOSS in FreeAgent
If these rules apply to any of your sales to the EU, you need to register for the equivalent of VAT in any EU country. Remember that this list of countries now excludes the UK. You then need to register for that country’s VAT MOSS service, which will allow you to file your business’s VAT MOSS returns in that country. Further information is available on HMRC’s website.
You cannot use the portal that HMRC used for VAT MOSS in the UK for any related sales dated on or after 1st January 2021. If you had registered for VAT MOSS in the UK before this date, you will need to de-register and then register for the equivalent of VAT and for VAT MOSS in an EU country of your choice.
Once registered for VAT and for VAT MOSS with an EU country, you should follow these steps before recording any VAT MOSS transactions:
- Choose 'Settings' from the drop-down menu that displays your company name at the top right corner of your screen.
- Select 'VAT Registration' from the 'Settings' area.
- Select ‘Yes’ from the ‘Do you need to use VAT rates other than standard UK ones?’ question in the 'VAT settings' area.
Recording VAT MOSS sales
Once you’ve followed the setup process outlined above, you can record MOSS transactions in FreeAgent by either:
- creating a new estimate
- creating a new invoice
- creating or explaining a bank transaction using the 'Sales' payment type
Creating a new estimate
To raise an estimate for a potential MOSS sale, create a new estimate, complete all the relevant information in ‘Estimate details’ section and select ‘More Options’.
Scroll down to ‘VAT Options’ in the ‘More Options’ area, select ‘EC VAT MOSS’ and choose the place of supply. This is usually the country where your customer lives, but in certain circumstances, you may have to use a different rate (e.g. if your customer is travelling internationally within the EU). HMRC provides full details of when these rules apply how to define the place of supply here.
Select ‘Create New Estimate’ and add the relevant line items to it. Choose the correct rate of VAT for each line item from the drop-down menu; a list of VAT rates for all EU member states is available here.
If you go on to convert the estimate into an invoice, the information relating to VAT MOSS will be transferred to the invoice, along with all the other estimate details.
Creating an invoice
To record a MOSS sale at the same time as raising an invoice for it, create a new invoice, complete all the relevant information in the ‘Invoice details’ section and select ‘More Options’.
Scroll down to ‘VAT Options’ in the ‘More Options’ area, select ‘EC VAT MOSS’ and choose the place of supply. Guidance on choosing the place of supply is available here.
Select ‘Create New Invoice’ and add the relevant line items to it. Choose the correct rate of VAT for each line item from the drop-down menu; a list of VAT rates for all EU member states is available here.
You can also use this process when setting up recurring invoice profiles for MOSS sales. Simply choose 'EC VAT MOSS' from the 'More Options' area, select the place of supply, then select the appropriate rate of VAT for each invoice line item.
Explaining a bank transaction using the 'Sales' payment type
If you receive money for a MOSS sale that relates to an existing invoice in FreeAgent, choose the ‘Invoice Receipt’ payment type and link the transaction to the invoice as usual. You won’t be asked to input any information relating to VAT MOSS.
However, if you receive money for a MOSS sale that doesn’t relate to an invoice in FreeAgent, you will need to either create or import a bank transaction for the sale, use the ‘Sales’ payment type to explain the transaction and enter the required VAT MOSS information. To do this, simply follow these steps:
- Navigate to ‘Banking’, select 'Bank Accounts' from the drop-down menu and select the foreign currency bank account that you paid the money from the sale into. Either add a manual bank transaction for the sale or select the relevant transaction from an uploaded bank statement or bank feed.
- Choose the ‘Sales’ payment type and select the ‘EC VAT MOSS’ option. This option will also be available if you choose the ‘Sales refund’ payment type.
- Select the place of supply and enter the date and amount of the sale (if this hasn’t been imported automatically through a bank feed or statement upload). Guidance on choosing the place of supply is available here.
- Select the rate of VAT for the place of supply from the drop-down menu; a list of VAT rates for all EU member states is available here.
What happens in FreeAgent
When you record a MOSS sale or sales refund in FreeAgent, the relevant transactions are added to your Show Transactions report under the account ‘824 - VAT Mini One Stop Shop’. To access this report, navigate to ‘Accounting’ and ‘Reports’ from the main navigation and select ‘Show Transactions’.
Use the first ‘Transaction’ filter on the report to specify an accounting period for the report and the second transaction filter to select the account type. The VAT relating to MOSS sales will appear in the ‘Credit’ column; the VAT relating to MOSS sales refunds will appear in the ‘Debit' column. You can see the full details of each invoice or bank transaction by selecting the relevant line item.
Submitting your VAT MOSS return
HMRC’s VAT MOSS portal is closing and cannot be used for any qualifying sales that are dated on or after 1st January 2021. Businesses that had registered for VAT MOSS in the UK before this date need to de-register for VAT MOSS. They then need to register for the equivalent of VAT in any EU country and then register for that country’s VAT MOSS service. This will allow these businesses to file VAT MOSS returns in that country.
The rules will be different for every country in the EU, so make sure that you check the local rules and speak to an accountant if you need additional guidance.