Are you 'in business'?
If you have received a letter from HMRC querying whether you run a real business, you are not alone. You also have every right to feel confused by conflicting official guidance.
Last year HMRC told UK traders they must register for VAT Mini One Stop Shop (MOSS) if they sell any electronic services (such as e-books) to non-business customers in other EU countries. Many online traders did as they were told and submitted quarterly VAT MOSS returns to report tiny levels of international sales in 2015.
HMRC have assumed such low levels of international sales are a reflection of equally small UK sales, and concluded that those reporting small amounts on VAT MOSS don't operate 'real' businesses. HMRC is asking those traders to deregister from VAT MOSS, and not to report their sales income on their UK tax returns.
We believe HMRC is mistaken. Serious UK businesses may have very small levels of international sales, due to the nature of their products. If you are in business, you must report EU sales of e-products to consumers under VAT MOSS, even if that is only one sale per year.
To decide whether you are genuinely in business you need to examine all factors relating to your business, including levels of purchases and sales, and whether you are aiming to make a profit. We can help you with that decision.
To make life easier for smaller VAT MOSS-registered businesses, HMRC is relaxing the rules slightly. Such businesses will only have to collect one piece of information about their customers to determine where the customer is based, and thus what VAT rate must be applied to the sale. This concession only applies for businesses with an annual turnover of less than £82,000.