Regardless of the outcome of the Brexit negotiations the EU will continue to develop its VAT system and UK businesses will continue to supply customers throughout the EU.
On 25 May 2018 the European Commission published a substantial document consisting of a detailed proposal to amend the current VAT legislation relevant to trade between EU customers. A major change, scheduled to be introduced in January 2021, is the extension of the Mini One Stop Shop (MOSS) to sales of goods to EU business and consumers.
The MOSS facility was initially made available to avoid the need for businesses selling electronically supplied services to EU consumers having to register for VAT in lots of countries, after 31 December 2014. An electronically supplied service is a service that can be supplied electronically with little or no human involvement on the part of the supplier. For example, apps are downloaded by the purchaser over the internet. Many UK businesses that sell electronically supplied services to EU consumers currently use the MOSS.
The underlying principal of the MOSS is that the tax authorities in the Member State, where the supplier is located, collects the foreign VAT due on the sale and passes it on to the tax authorities in the Member State where the customer is located. This principal is illustrated by the diagram, provided by the European Commission.
An issue for UK businesses is, that to use the MOSS, a business must be registered for VAT in an EU country, but the UK will not be an EU country after Brexit takes effect. UK businesses that sell to EU customers may therefore have to consider appointing a VAT agent in an EU country in order that they can still use the MOSS facility after Brexit. For businesses selling electronically supplied services to consumers this is an issue that will need to be addressed sooner rather than later.