I’d just like to take a moment to share a recent victory of mine. Before 2015, EU companies used to charge VAT at the rate of where the business was, leading to companies like Amazon setting up in in low VAT jurisdictions and making sales from there to lower the overall cost of an item, irrespective of where the customer resided in the EU. On the 1st January 2015 however, the VAT MOSS system was introduced which mandated VAT for online sales should be charged in the country of the customer, in an alleged reasoning to make the VAT system fair. However, this imposed a very problematic situation: a requirement for the company to know where the customer is located.
The VAT MOSS guidance added further headaches, especially to one of my upcoming business projects by requiring “proofs” of customer location information, as detailed within the explanatory notes to the legislation. After hours of reading through the document, the main issues arising were that for an anonymous web hosting service, any information being collection would not only breach the breach the privacy of customers, but negates the entire point of the business. As the guidance offers no advice as to how to handle anonymous online transactions, I consulted with HMRC, the UK’s tax authority which is where my company is registered.
Throughout a series of exchanges, HMRC repeated to me the need for 2 proofs to be in line with the VAT MOSS system. However, I have always rejected that happening as I would rather close my business than break the promises I offer. I made various offers to the tax authority on how to reach a middle ground, such as assuming the UK rate is payable on global sales, and to also possibly switch to another VAT scheme even if it costed my business more money.
The deadlock has finally been broken! I received this email from HMRC recently which has now been verified by an accountant to be binding for my business. This means unless there is a law change or the EU courts come to a different conclusion, I may now process transactions anonymously without being required to know the address or any other information about a customer and still charge the required VAT on transactions. Hip hip hooray!
Dear Mr White
Thank you for your email and I apologise for the delay you have experienced in getting a reply to your question, which presents an unusual and difficult situation.
As you collect no information on where your customers belong, and therefore cannot evidence a different place of supply, we will expect you to charge and account for UK VAT on your supplies on the basis that the supply of services are made in the UK.
If a customer contacts you to say that they belong outside the UK, we will expect you to retain the evidence to support the non-application of UK VAT. A simple assertion that they do not belong in the UK will not suffice. If the customer does not provide you with a VAT number, you will be liable to register in the customer’s Member State. If the records presented by the customer enable you to meet the record keeping requirements you may be able to use MOSS to bring the VAT to account.
I hope this is helpful but if you have any further questions please do not hesitate to ask.
[HMRC Rep name redacted]