VAT Conflict on Digital and Physical Products

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I’m a new startup based in the UK selling both Digital and Physical products and have a low expected annual turnover (below the UK VAT threshold). I understand all sales of digital products to EU customers must collect VAT and make a submission. I intend to do this through the MOSS scheme in the UK. To join the MOSS scheme, I had to voluntarily register for VAT. It now appears that because of the VAT registration I will have to collect VAT on the Physical goods I’m also selling.

If this is correct, it leaves me with a problem in that it wipes out my profits on the physical goods. The supplier of the physical goods isn’t VAT registered and will continue to trade below the VAT threshold, so I can’t reclaim the VAT on my purchase from them.

I’m struggling to find reliable advice on this issue having consulted with accountants (a couple have said they will investigate further but with no timescales). Calls to HMRC also seem to leave people confused as to what I’m talking about when I use terms such as EU Digital VAT collection and MOSS VAT single stop reporting.

I can’t believe I’m the only person in this situation so was wondering if anyone here has any experience?

Thanks in advance.

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