Small businesses and VAT

Repost: This blog post was first published on 20 December 2014. Unfortunately, the site suffered a hacking attack over the Christmas period, and the original post was lost, along with several comments from readers. Although I have restored the main body of this post from a local backup, I have not been able to recover the comments. I apologise for this, and would invite readers to resubmit their comments below if they so wish.
Since writing this post in December 2014, I have spoken to a number of my constituents as well as colleagues in the European Parliament about this issue, and I have been made aware of some further concerns about this change in the law, especially as it relates to small businesses. So I have published an updated blog post which goes into more detail about these concerns and the actions Labour MEPs are taking in response.

From 2015, EU countries have agreed a change to VAT rules in the single market.

Until now, companies who sell across borders have usually been able to charge (and pay) VAT at the rate of their home country. This has allowed large multinational corporations to base themselves in countries with the lowest rates of VAT – and their ability to move their operations to dodge higher tax rates gives them a major competitive advantage over small businesses and independent traders, who are stuck charging their own country’s VAT rates to shoppers all over Europe.

We are putting a stop to this. From next year, when a company sells a product anywhere in the EU, the buyer pays VAT at his or her own rate rather than the rate of the seller. This is an important change at an EU level to make the tax system fairer, and to ensure that large companies do not have a major advantage over small businesses and individual traders by simply moving to wherever the tax regime in the EU suits them best. This kind of fairness in our tax system is something that Labour has been fighting for in Europe for a long time.

Ahead of the new rules, there has been some concern among micro businesses and individual traders about how the new rules will affect them. I completely understand why changes to the tax system would cause concern – especially for casual sellers with a small turnover.

My colleague Anneliese Dodds, who sits on the Economic and Monetary Affairs Committee of the European Parliament, leads for Labour on this issue. Anneliese has taken the issue up with the UK government, HMRC, the European Commission, the Federation of Small Businesses, consumer organisations and others to get to the bottom of the problem.

She has received some clarifications and assurances, which I hope will alleviate some concerns:

  • You will not need to become familiar with the individual tax regimes of all 28 EU Member States. The whole purpose of HMRC’s ‘one stop shop’ is to make life as easy as possible for small businesses and individual traders. If you continue to trade as you do now, then you can submit your sales figures to the one stop shop and it will calculate your VAT and present you with a single figure, in pounds sterling.
  • You will not need a VAT number in order to use the one stop shop. I know that a number of businesses and traders have been concerned that they will need to register for a UK VAT number in order to use the one stop shop. I have spoken to HMRC and can confirm that this is not the case. Instead, you will simply be given a one stop shop registration number in order to use that service.
  • You will not have to pay VAT on your UK sales. If you are below the existing UK threshold of £81,000 of sales in a year, then you are currently exempt from registering for and paying VAT in the UK. That exemption will remain for UK sales, even if you sell in other Member States. So while you will have to use the one stop shop and pay VAT on your European sales, your protection from VAT registration and payment in the UK remains.
  • You will have until 20 April 2015 to make your first returns. Although the new EU law comes into effect on 1 January 2015, you have the first quarter of the year in order to make your returns to HMRC via the one stop shop. The one stop shop has been open for registrations since October, and you can continue to register into the new year.
  • If you trade through any online platform, like Etsy or the App Store, then you will not need to register. If you do trade through such a platform, it is worth checking whether or not you need to register. A significant number of them will calculate the VAT for you, and you won’t need to do anything.
  • HMRC will answer questions. You can contact them via their Twitter account @HMRCcustomers, where they have recently held a Twitter surgery to help with people’s questions and concerns.

I do appreciate that these kind of changes can bring upheaval to smaller businesses and individual traders who do not have the systems in place to adapt easily to new regulations, unlike the bigger companies. I know that the Financial Secretary met representatives of micro-businesses on December 3 to address their concerns, which does seem to be rather a late response as the new rules are due to come into effect in January 2015.

I can assure you that the Labour delegation will continue to put pressure on the UK government and HRMC to make sure that they do not downplay the seriousness of small traders’ concerns, and to push for them to provide clearer guidelines and help to those who will be directly affected by the new rules.

Anneliese has asked for HMRC and the UK government to provide her with more detail on some related issues that I and other Labour MEPs have been asked about, and I will post an update on this blog as soon as I’ve heard back from them. In the meantime, if you are a small trader based in Yorkshire & Humber and you have a concern not addressed in this post, please do let me know so I can take it up on your behalf.

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