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VAT Moss and E-Commerce Business

Disclaimer: Policies discussed are as of the January 8 2016 changes to the HM Revenue and Customs VAT MOSS guidelines for E-Commerce businesses in the United Kingdom. All UK VAT and VAT MOSS guidelines can be found here.

In 2015, as an answer to large companies driving sales through countries with low VAT rates, the European Commission issued changes to VAT laws forcing E-Commerce businesses to apply VAT rates to their digital services based on the consumer’s location in the European Union, as opposed to the business’.

In essence, the same £100 service would now be £120 if sold to a customer in the UK (20% VAT rate), £121 if sold to a customer in Spain (21% VAT rate), and £124 if sold to a customer in Finland (24% VAT rate). This proposed an immediate problem for every E-Commerce business across the EU- there were 28 different countries with 81 different VAT rates, the prospect of accomplishing the admin work alone seemed insurmountable. As opposed to registering for VAT in every country your business sold a product in, the EC offered the highly attractive option of registering instead for a VAT Mini One Stop Shop (VAT MOSS) to E-Commerce businesses. While VAT MOSS did solve a huge problem for e-commerce businesses across the EU, much confusion arose and remains about its exact operation and regulations.

What to Know & When to Register

The main goal of VAT MOSS is to simplify things for the business, and it only applies to business to consumer sales of digital services. If you aren’t sure if your product qualifies as a digital service, HMRC defines them in extensive detail here.

VAT MOSS was introduced as a platform to distribute quarterly VAT returns directly to each country digital services are sold in, as opposed to you submitting VAT reports individually to each country. VAT MOSS requires you to submit one return quarterly that identifies your business’ total VAT accumulation in each country digital services were sold.

In order to register, your business must already be VAT registered in each country you have a fixed establishment. There are no thresholds for the new VAT laws, so even if your business falls under the £82,000 UK VAT threshold, you must still pay VAT on digital services sold in other countries. This means if you own a micro e-commerce business under the threshold, then you must voluntarily register for VAT (don’t worry, you won’t have to pay VAT on services sold in the UK) in order to use VAT MOSS.

Remember, you only need to register for business to consumer sales of digital services. A consumer is any person or business that is not VAT registered, so if you are selling services to a business that is not VAT registered, you must treat it as a business to consumer sale. There are also exemptions if your sales fall under non-business activities, which are explained here.

VAT MOSS Returns

HMRC requests when using the VAT MOSS scheme that your business keeps records of each sale for up to 10 years. These records must include the member state of sale or the member state of consumption, the date, the taxable amount and currency, the VAT rate applied, the VAT due and currency, the payments received, the invoice issued, and the information used to determine the customer’s location. The list seems extensive, but most of the information is required on your service invoice. Apart from the data on your invoice, documentation of the customer’s location is the primary record that must be kept. Most businesses must keep two sources of information, but businesses under the UK VAT threshold only need to keep one. This may be information provided by the payment service provider, an IP address, billing information, etc. Almost any documentation that confirms your customer’s location will suffice.

When filing your VAT MOSS return each quarter, you will require, for each member state services were sold in, the VAT rate type (standard or reduced), the VAT rate percentage, and the total of all taxable digital services sold. You must also submit a separate VAT return for services sold in the UK (micro-businesses who had to voluntarily register for VAT may submit nil returns). If you are leery about filing your first return, the HMRC provides a detailed walkthrough for first-timers using the VAT MOSS scheme.

While VAT MOSS remains imperfect, as evidenced by continual EC gatherings and amendments to the laws, learning to use it has become essential to reporting and paying VAT returns across the EU. It is our hope that some of the trepidation regarding VAT MOSS has been alleviated, and that you now possess an understanding of the benefits VAT MOSS can have for your e-commerce business.

Cloud Accounting

Cloud accounting is fast becoming a necessary tool for small businesses. With the help of mobile phones and tablets, accessing your financial documents on the go can be achieved with cloud technology.

Despite the availability of these tools, only relatively few small business owners are using them.  If you’re one of those owners who are resistant to the concept of this technology, it’s probably the right time for you to overcome your fears.

Here are the most important reasons your small business should embrace cloud accounting technology:

1.   Easy collaboration with staff

With the advent of cloud accounting, accessing your financial data in a fixed location is becoming a thing of the past.  Cloud accounting lets you and other authorised users delve into the financial data of your company regardless of their location.

Since it’s not in a centralised location anymore, viewing your financial data is no longer restricted to the office.  If there are things that require your attention, you don’t have to go to your office to update them. You can take your business wherever you go.

2.   Better Cash Flow

It has been suggested that business owners who embrace cloud accounting and accept online payments get paid faster. The reason for this is that automating invoicing can improve cash flow; thereby, saving time in following up overdue invoices.  Some cloud accounting providers also offer simple financial management tools to reach customers wherever they are.  By doing this, payments are easily received.

3.   More accurate picture of overall financial

With cloud accounting you can easily review your numbers whenever and wherever you want to, you can quickly respond to any type of challenge.  With easy access to all the information, you have better decision-making capabilities.  As a result, you can conveniently keep track of your bottom line.

4.   More flexible

As the business evolves and grows, cloud accounting can grow along with it. This type of technology also allows you to utilise other relevant apps so that you can efficiently compete with other companies.

5.   Better backup

With cloud accounting, backing up your financial data is easy.  In case of a system crash, you can retrieve the data from the cloud storage client.  This ensures that you will not lose all your important financial info.

Since you can upload your financial documents, you can share them with your employees and co-workers, so they can have appropriate access to these relevant files.

6.   Better compete

Cloud accounting is cheap but efficient.  You can start to keep up with some big corporations. It gives you a voice in your niche allowing you to take your business to the next level. By using a remote bookkeeper, it can lower your business’ overall costs and it makes accounting and bookkeeping a lot simpler.

Cloud accounting gives any type of small business an effective way of competing with larger companies.  It is true that there is still a lot to learn about cloud technology, however, once you use it, you will realise the benefits in simplifying and securing your accounting processes.  Not only that, it allows you to remain competitive without having to pay more.

Small Business Bookkeeping UK

No doubt that as a small business owner you will want to know the headline figures but you may also have to do the bulk of the bookkeeping to keep costs down.

“How hard can bookkeeping be? I’ll just do it myself.”

This isn’t an unusual thought for some small business owners but the reality can be quite different.  Bookkeeping is not something you can simply pick up and do without any knowledge or planning but it can be made easier.

While doing it yourself may draw your attention away from core business, in the beginning it may be necessary so let’s look at 5 steps to make your bookkeeping easier.

1.   Educate yourself

Learning the basics of bookkeeping, knowing your balance sheet from your P&L, understanding the differences between profit and cash or knowing how to account for assets, taxes and other costs could help you avoid some potentially expensive and reputation damaging pitfalls.

Investing some time in thorough research or attending a basic course could save you money in the long run.

If you want to do it yourself it will take time to learn but it needs to be done right.

2.   Select the right system

Once you’ve grasped enough to feel comfortable you should choose the right system to help organise your accounting and produce some useful reporting that you can use to help run the rest of the business.

One basic option is a spreadsheet, the main benefit of this is that it’s likely to be free but will probably take more time to maintain, opens the possibility of formula errors, often provides less useful reports from which to make decisions.

Dedicated accounting systems are typically the way to go.  There are many to choose from and the benefits of each should be weighed against one another.

The main decision is whether to buy an out of the box software that will be installed on your computer/server or to utilise one of the number of growing cloud-based solutions.  The latter is usually available on a subscription and can be accessible at any time and from anywhere.

Each cloud accounting system has different features; however, continuing developments have meant that they can save you time, make mistakes less likely, provide valuable reports and help to manage your creditors and debtors.  The use of cloud software is on an upward trend and adoption is forecast to continue in future years.

Bookkeeping Processes are a key part of a simpler remote bookkeeping system

3.   Put a process in place

Once you have the knowledge and you have chosen a system you need to put a standard process in place and stick to it.  It will minimise the chance of errors if you ensure that transactions are processed consistently.

Within the process include standard reports that you would find useful to run the business, determine standard formats for sales invoices as well as customer communication plans when working to recover overdue debts.

It goes without saying (although I will say it) that business and personal expenses should be kept completely separately. Ensure that you keep all accounting documentation, receipts, invoices etc. so that they can be input into the system.  Some cloud accounting systems will allow you to attach a digital image to each transaction making later review easier.

4.   Keep up to date

Running your own books requires a reasonable time commitment.  You will need to keep up to date with the processing of all accounting documents but you will also need to keep up to date with changes in certain regulations.

You should aim to process transactions regularly but how often should this be? This really depends on what you want to achieve and on how many transactions you have but it should be regular enough that you are always aware at any given time how much money is in the bank, how much is due to come in and how much you need to pay out.  Sometimes this will mean processing throughout the day, every day or sometimes less frequently.  It should never be less than once a week for any business.

5.   Ask for support

If you do all of the bookkeeping yourself there’s no easy solution, it will require some hard work, time and effort.

If you want to spend your time concentrating on your business or you find that you’re growing and simply can’t dedicate enough time to maintaining your accounts or that your focus is being taken away from your core business then you should look to a professional provider for assistance.

At Sanay we can support your business by taking part or all of the process of your accounting and bookkeeping leaving you more time to concentrate on growing your business.  Asking a dedicated provider for assistance is a positive step in managing your accounts; you can grow your business without experiencing the growth in number of accounting transactions.  You can simply provide the documents and the specialist provider will take care of the rest, they can manage the whole process, provide informative reports and ensure all deadlines are met without you having to worry about it.  You accounts will be updated in real time and available to view 24 hours a day, 7 days a week, 365 days a year in the cloud.

Do you want to learn more about outsourcing your finance function to facilitate growth in your business? Schedule a free consultation today!


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