From the 1st of January 2015, a new VAT system is coming into play, which impacts businesses in the EU who provide Digital services.
You can find out more: https://www.gov.uk/government/publications/vat-supplying-digital-services-to-private-consumers/vat-businesses-supplying-digital-services-to-private-consumers
This impacts some of our QBO users; below is a step-by-step guide on how to prepare your QBO platform for the VAT MOSS system.
I’ll explain what you need to do if you fall into one of these 2 scenarios:
SCENARIO ONE: “I’m already VAT registered and currently complete a UK VAT return and now I’m also impacted by the EU digital services rule.”
PLEASE NOTE: if you’re supplying to businesses in the EU (B2B), do not do the following, this guide is only if you’re supplying consumers (B2C). If you’re not sure, read the guidance above and get in contact with your accountant and HMRC.
You’re already tracking your UK VAT in QBO, so let’s create a new Tax agency to separate out the UK VAT return and the EU Digital supplies you make to consumers. A Tax agency is simply another word for ‘VAT Return’. You are going to create a New VAT Return called the VAT MOSS (return).
Click on the VAT Tab > Click on ‘New Tax’ > ‘A Custom Tax’ > Next
Now, Complete Box that appears – this flow will help create your first EU tax code and also the agency’ (New Tax Return -called VAT MOSS) the example in the image is if I was creating a French Tax code TVA, and I want to call my new Agency’, ‘VAT MOSS’. I recommend you speak to your accountant/HMRC before completing the set up below if you’re unsure of any dates or information.
You’ll need to fill out the following:
- Tax Name: The name of the EU Tax code you want to create, in my example I’ve called it VAT MOSS France… you can call it ‘France Tax’, or ‘FR’ for example
- Tax Agency: Name it ‘VAT MOSS’
- Registration Number: Your UK VAT Registration Number starting with GB
- Filing Frequency: Quarterly
- Reporting Method: Standard / Cash
- Tick, ‘This Tax is collected on Sales’ > Next
Now from here, you will find the screen below. Enter in the tax rate (just type in the amount and ignore placing a % sign) then click “Done”.
Now you’ve achieved 2 things:
1) You have created a new ‘VAT return’ called the ‘VAT MOSS’
2) You have also created a new tax code called ‘VAT MOSS France’
On your VAT tab now, you will see your normal UK VAT return called simply ‘VAT’ the rectangular box at the top, then underneath you will see another box called VAT MOSS. Why is this so helpful? You can track both your UK VAT position and your VAT MOSS position from one screen.
We haven’t finished – now imagine you also supply consumers in Spain. You now need to create the Spanish TAX code…you may also want to know what exactly is the VAT rate in Spain, check this link: http://ec.europa.eu/taxation_customs/tic/public/vatRates/vatrates.html
Click on ‘New Tax’ > but this time, on the pop up, we’re going to click on ‘An additional Tax code’ > Next
Now do the following to create a Spanish VAT code:
- Tax Name: Call it what you like – I’ve called my one ‘Spain VAT’ or call it ‘VAT MOSS SPAIN’
- Tax Agency: It’s key to select the new ‘Agency/Tax return’ in my example it’s the ‘VAT Moss’
- Tax applies to: ‘Sales’
- Rate: Just the Tax rate (without the %)
- Show Tax amount on the return line: Tax Collected on Sales
- Show Net amount on the return line: Total Taxable sales in period before Tax.
- Then Click ‘Done’
- You now have a French VAT code and a Spanish VAT code.
Now you want to create a Sales invoice to Julien in Paris, how would this look in QBO? In this example, I’ve created a new Customer called ‘Julien’ – remember he’s in France consuming my digital services and I’ve agreed to invoice him in Euros. I’ve also under ‘Notes’ within Julien customer card, noted down supporting evidence just as his IP address or ANY other note about him such as the buyers location info. Remember to select his Currency as ‘Euros’
Now on his invoice, I’ve done the following:
I’ve selected the correct VAT rate ‘VAT MOSS France’ and then saved.
Now in the VAT tab, you can see the Sale automatically updated under the VAT MOSS box.
<<If you want to make any Currency adjustments, do the following>>
It’s now the end of the quarter and I need to file. If you now need to adjust the currency you’ve used (take advice from an accountant). The European Central Bank currencies are updated and listed here: https://www.ecb.europa.eu/stats/exchange/eurofxref/html/index.en.html
In QBO, if you need to make adjustments you can do so by doing the following:
Now select the invoices you may want to adjust and manually type in the rate from the ECB on the last working day of the quarter.
Manually enter the FX rate. It’s always good to note down a memo and select the invoices that are applicable.
Now when it comes to filing, you can click on ‘Prepare return’ from the ‘VAT Tab’ for the VAT MOSS’ agency and ensure your dates are correct for your MOSS VAT quarterly return:
Box 2 shows the total taxable sales before tax.
Box 5 shows the total amount of all the VAT you’ve collected from all your sales around the EU, so in this example it’s the total VAT on sales to Spain (21%) and France (20%)
Now in QBO when you’re ready, click on ‘mark as filed’
However you also need to complete your return to HMRC, so you need a breakdown of the sales by EU nation and Tax code.
Click on Reports > All Reports > Manage VAT > VAT Liability Report
Now in this report you’ll see:
If you wanted to further analyse the sales that make up the Net Amounts, click on the ‘Net Amount figures’ and it will bring up all the invoices that were marked with for e.g. VAT MOSS France.
Click on Excel or click in to the net amount and then use that report for your VAT MOSS return that you will complete on HMRCs site.
Now…. In SCENARIO 2-
If you’re not yet VAT registered but are planning to as you are impacted by the EU VAT MOSS ruling, speak to an accountant and/or HMRC around the requirement of having to register for VAT to get a VAT Registration number but not needing to track VAT on your normal UK supplies and expenses.
Once you have received guidance, you should click on the VAT Tab to set up your UK VAT return (as per above in Scenario 1) Enter in your UK VAT number and select Quarterly as your Filing frequency. The VAT Month start period is normally provided by HMRC, again contact your accountant if you’re unsure of any aspect of setting your VAT in QBO.
If the majority of your transactions are actually UK based supplies and expenses (but you’re planning to providing a ‘Nil’ return to HMRC as you’re below the VAT threshold), then do the following below, it will save you time when creating expenses, bills, invoices for your UK based customers.
The Settings Cog > Company Settings>
Click on Advanced > Accounting > Default Tax Rate > select ‘NO VAT’ as the setting ‘SAVE’ then done.
This means that all your transactions will default to ‘NO VAT’, which is fine for the UK transactions you have (if you don’t want to account for the VAT on these UK based transactions), but for the EU transactions which are covered by VAT MOSS will need to make adjustments to the invoice when creating it.
This is in more detail explained below:
So for Julien again, when I create an Invoice, there is no VAT column showing, you will need to do the following each time you sell to Julien in France on the invoice:
Select Exclusive or Inclusive as per your liking but then under the VAT Column below on the invoice, select the VAT code you’ve created earlier, for Julien it was VAT MOSS FRANCE. Then hit save to save the invoice.
Repeat this every time you need to sell to your EU consumers who consume your digital services.
When it comes to filing, follow the steps in Scenario 1 as it’s all applicable. The difference being, your UK VAT Return will be ‘£0’ but your VAT MOSS return will have an amount.
Thanks, get in touch with our support team if you have any Questions on how to do this in QBO.