VAT MOSS is short for VAT Mini One Stop Shop. It’s an option offered by HMRC for businesses affected by a change to the rules relating to the supply of certain digital services from the UK to consumers in the wider EU. Here we explain what VAT MOSS is, how it’s handled in FreeAgent and how to get the information you need to file your quarterly VAT MOSS return to HMRC.
An introduction to VAT MOSS
On 1st January 2015, a new rule was introduced that means that any business in the UK that supplies certain digital services to consumers in the wider EU has to charge those consumers VAT at their own local rate.
Only supplies to consumers are affected by this change in the rules - supplies to business customers are not impacted - and only sales of certain services are affected. In short, the affected services are those that are supplied digitally with minimal or no human intervention at the point of sale, such as apps and PDF craft patterns. HMRC provides a full definition here.
The rules for sales of physical goods have not been changed, no matter how the goods are offered for sale. As an example, the sale of a printed book, ordered online but delivered in the post, won’t be affected by these changes, because the printed book is a physical good. But the sale of an e-book delivered automatically to the buyer’s e-reader would be affected.
HMRC created the VAT MOSS option so that instead of having to register for and pay VAT to the equivalent of HMRC in all the different countries where your customers are, you can draw up a single MOSS return containing all the VAT you’ve charged to consumers in the EU for sales of digital services each quarter, and pay that VAT to HMRC.
Setting up for VAT MOSS in FreeAgent
If these new rules apply to any of your sales to the EU, you will need to register for both UK VAT (if you haven’t already done so already) and for VAT MOSS. This will enable you to charge the appropriate rate of VAT on your relevant EU sales in FreeAgent.
Unless your annual sales exceed the VAT threshold (in which case your business should already be registered for UK VAT), you won’t need to start charging VAT on your sales to the UK. You will, however, need to file a quarterly VAT MOSS return to HMRC, as well as a quarterly UK VAT return; we’ll look at this in more detail later on in the article.
To get set up for recording VAT MOSS transactions in FreeAgent, navigate to ‘Settings’ and ‘VAT Registration’ in FreeAgent. Select ‘Not registered’ from the ‘Are you VAT registered?’ drop-down menu and tick the ‘Enable VAT MOSS Reporting' box.
If your business is already VAT-registered, it’s still a good idea to review your details on the VAT Registration page and to make sure that the ‘Enable EC VAT Reporting’ box is selected. You should also have selected ‘Registered’ from the ‘Are you VAT registered?’ drop-down menu and completed the other details relating to your VAT registration.
Recording VAT MOSS sales
Once you’ve registered for VAT and have completed the information on the VAT Registration page, 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 ‘EC Status’ 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 ‘EC Status’ 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’ 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 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.
Filling your VAT MOSS return
You will need to file a VAT MOSS return four times a year to HMRC for the quarters ending in March, June, September and December. These returns are due by 20th April, 20th July, 20th October and 20th January respectively. At the moment, you can’t file VAT MOSS returns through FreeAgent; you will need to do this through HMRC. However, the information in your ‘Show Transactions’ report in FreeAgent will help you do this.
You will also need to file a UK VAT return to HMRC four times a year, even if your UK sales remain outside the scope of UK VAT. This will be a nil return unless you are reclaiming VAT on the costs you incurred in making your EU sales (if your UK sales are outside the scope of UK VAT, you won’t be able to do this). At the moment, FreeAgent doesn’t support the filing of nil VAT returns, so you will need to do this through HMRC. If you are reclaiming VAT on the costs you incurred in making your EU sales, you will need to calculate this outside of FreeAgent and create journal entries to account for the reclaimed VAT.