VAT MOSS and VAT OSS in FreeAgent

This article explains what VAT MOSS and VAT OSS are, how they are handled in FreeAgent and how to get the information you need to submit your VAT MOSS or VAT OSS returns to your chosen tax authority

An introduction to VAT MOSS and OSS

VAT MOSS is an abbreviation of VAT Mini One Stop Shop. It was 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 supplied certain digital services to consumers in the EU had had to charge those consumers VAT at the local rate in the country where the consumer used the service.

The supplies affected by this scheme were services 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.

The VAT MOSS scheme has been extended to become a One Stop Shop (OSS) as from 1 July 2021 covering a wider range of supplies and introducing further simplifications. Although the OSS system has been designed for recording the intra-community sales of services and goods, a non-union OSS system has also been put in place which can be used by businesses based in the UK to report sales of all sorts of services to the consumers based in the EU.

Although there is currently no functionality allowing users to account for VAT under the non-union One Stop Shop system within FreeAgent, the VAT MOSS functionality could be used to create invoices or explain sales transactions when a business needs to account for VAT under the non-union OSS system.

Setting up for VAT OSS in FreeAgent

If you are going to use the OSS scheme for any of your sales, it is likely that you will need to register for the equivalent of VAT in any EU country. Remember that this list of countries now excludes the UK. You would then need to register for that country’s non-union VAT OSS service, which will allow you to file your business’s non-union VAT OSS returns in that country. Find out more about the non-union VAT OSS on the European Commission website.

Once registered for VAT and for VAT OSS in an EU country, you should follow these steps before recording any VAT OSS transactions:

• Choose 'Settings' from the drop-down menu that displays your business 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 OSS sales

Once you’ve followed the setup process outlined above, you can record OSS 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 OSS sale, create a new estimate, complete all the relevant information in ‘Estimate details’ section. 

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 OSS will be transferred to the invoice, along with all the other estimate details.

Creating an invoice

To record an OSS 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’.

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 OSS 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 OSS 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 OSS.

However, if you receive money for a OSS 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 OSS 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 OSS 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 OSS sales will appear in the ‘Credit’ column; the VAT relating to OSS 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 OSS return

You will need to submit the non-union OSS VAT Return with the EU country that you registered for the scheme with. As the rules of making the submission will be different for every country in the EU, we recommend you check the local rules and speak to an accountant and/or a local VAT expert if you need additional guidance.