The Jan 2015 change to the place of supply rules for electronic services caused a lot of consternation amongst some rather unlikely groups. One of the most vocal groups were knitting pattern writers that were concerned that if they sold an pattern electronically to say Germany they would now have to register for VAT as there is no MOSS registration threshold. In response, I published an article which said that perhaps there was an overreaction as such activities would not be caught by the rules. This is because in the UK would they would not be regarded as being in business for VAT.  A year later HMRC have just published a policy paper on VAT MOSS that states exactly that – that they are concerned that a number of VAT MOSS registrations they have received are for hobby businesses. They will be writing to such registrations questioning if they should be registered. See HMRC Moss Paper

The question is  whether the HMRC view is shared by other member states. Since I wrote the original piece I have investigated further and now suspect that the UK may operate a rather more restrictive test towards hobby businesses than elsewhere in the EU. Since MOSS is a simplification that saves you having to VAT register in other countries this could be rather important. Does the fact that the UK authorities believe an activity is not an economic activity falling within the scope of VAT bind the German tax authorities if that is where your customer is based ?

I think the answer is that technically the Germans could disagree and in the absence of a MOSS registration demand a German VAT registration. If course in practice this would be most unlikely and if the UK tax authorities ask a hobby business to deregister from MOSS that’s probably the end of the story. But its an interesting question that I will investigate further.

In terms of activity being a business it is worth remembering that small scale activities can be business. For example power generated domestically by solar panels and fed into the grid has been seen to be an economic activity by the European Court.  Where the dividing line lies between a hobby and a business is a tricky question, and one that has to an extent been masked by the UK having a high VAT registration limit. For example if I am a photographer that occasionally sells photos does this mean I can recover VAT on my camera equipment. The cost of this far outweighs the income I obtain, meaning I would be in a VAT repayment position. Although the absence of profit isn’t critical to an activity being business;  I suspect in practice if I was to sell a few photos a year I would never convince HMRC or a tax tribunal I could register for VAT. If however, my sales were more substantial and I could show I took photos partly with an eye to commercial exploitation the position might be rather different.