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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28 Comments

  1. Thanks for reposting this. I do think the “fairness” is not as fair as it is made out to be. The cost of applying the necessary changes to comply with this legislation is disproportionately higher for small busineses. My werbsite in its current form is unable to handle all the VAT calculations so I need to either sell through a 3rd party of spend money upgrading my website.

    At the moment I am selling through a 3rd party because of the time and cost implicatoins. However, this still isn’t a small matter. Every product page has to be changed, new links created and the prpocess checked. For people who may be running their business as a second income or who have limited time or funds this is not a simple job. Some people may say that if you can’t afford it you shouldn’t be running a business, but a lot of businesses are stretched to the limit because of the economic situation. When you’re self employed you can’t make redundancies to save costs.

    EU businesses are also being put at a disadvantage because many non-EU businesses are refusing to comply or are unanware of this legislation and so are undercutting those of us who are adding VAT. EU consumers are being put at a disadvantage because another response from non-EU businesses is to block EU customers.

    The statement that UK businesses do not have to charge VAT to UK consumers is incorrect when you are selling through a platorm. The only platform I can find that enables me to sell my bundled prodcuts is US based and so they have to add VAT to all customers. I would assume that a successful 3rd party platform would be over the £81,000 threshold so even if they were in the UK they would still have to charge VAT to UK customers.

    As you said in a tweet Richard, the devil is in the detail.

  2. Hi Richard, Thanks for reposting your blog post. Here is my previous comment, plus a few more observations:

    I ran a micro-business for a few years, selling some software I’d written at £5.00 a time. Most of the sales were to the USA, and maybe half were to the EU. I turned over about £1500 per annum. This tiny turnover meant a lot to me but was well below the VAT threshold.

    Working these figures under the new VAT regime, £1500 per annum would be £750 pa in EU sales. Let’s call it £190 per quarter. Assuming an average VAT rate of 20%, I would have to remit to the HMRC/MOSS £38 per quarter. I would also have to provide MOSS with a detailed form stating how much I’d sold to each EU country so that they could distribute it. If I’ve made 38 sales to the 28 different countries of the EU, then each one will get somewhere around £1 each.

    Just doing the necessary paperwork will cost me more than £38 in my time, and I find it difficult to believe that it will cost the UK MOSS much less than £38 to distribute these trivial amounts around the EU. So who’s picking up the tab for the HMRC MOSS? I assume it’s the UK taxpayers. My micro-business was larger than many, making a couple of sales a day. There are some which might make one sale a week, making the MOSS admin costs proportionally higher.

    The whole process will churn trivial sums around the EU, costing far more in admin time then it ever makes. No doubt each country’s MOSS will be facing the same problems. We’ve got a 28 administrations passing trivial amounts of Euros and Pounds to each other, costing a fortune and saving nothing whatsoever.

    This madness is fuel for UKIP and needs to be nipped in the bud!

    If the Tories win the next election then we’ve been promised an In/Out Euro election. I have been a fervent EU support all my life (I’m 60 now) but for the first time ever I’m wondering if the European experiment has now gone one step too far.
    —-
    Some new observations.

    A common comment from Euro Commissioners is that this puts all companies on a “level playing field”. You have no idea how hollow that sounds to someone who’s run a micro business and whose plans to start a new one are firmly on hold. It may well put businesses turning over £1000000 on the same footing as Amazon, but frankly when your turnover is only £1000 then this particular playing field is far from level.

    Another comment is that sales platforms such as the App Store or Etsy will handle the tax for us. While its true that the App Store and Google Play will handle tax, they are also very very fussy about what they sell on their site. Not every piece of software is an “app” according to their narrow definitions, and when they do sell something, they take a nice cut of the proceeds. This means that app stores aren’t always a viable option for a software producer such as myself. For me, my best option for my next project is to sell directly from my own web site – but this time I’ll face the full burden of having to know 27 EU VAT rates and take that into account with my pricing, and right now I don’t even have the vaguest idea of how to tackle that problem without breaking EU regulations. Meanwhile, both Pay Pal and Etsy have firmly stated that they definitely won’t be handling the VAT on behalf of their users. Thanks a lot!

    Finally, there appears to be the common view that small businesses don’t sell abroad. In fact, with the internet and a web site it’s almost inevitable that most sales will be abroad. I think the EC has simply lost track of how small the world now is, when you’re selling what is little more than a pattern of data in a computer file.

    There is no doubt that the HMRC MOSS is going to be a great timesaver; however, it’s clear that if there are any accounting errors then the small business is going to face wrath of each individual country’s VAT system, rather than that the of the HMRC (which takes a rather pragmatic view of problems). Even if no one ever gets prosecuted in Italy, or France, or Greece, just the threat is really quite a daunting prospect to someone just selling two knitting patterns a week.

    I’m now hearing anecdotal evidence that some small companies are closing up shop, or simply no longer selling into the EU. You might argue that closing down a business turning over £1000 or so is no loss in the wider scheme of things – and maybe that’s the view of the European Commission – but I sincerely hope that it’s not the case. Most large businesses started out from small businesses, and if they’re going to be throttled at birth then it’s the large companies like Amazon who are going to benefit, and Britain’s entrepreneurs will lose out.

    The solution is simple – we need some level of turnover limit to allow small companies to grow, ideally something like £81,000 or €100,000 within the EU, and later on an international agreement of $100,000 for companies worldwide.

    Now that would be a level playing field!

  3. Two points:
    1.You wrote that “the buyer pays VAT at his or her own rate”. In a way this is correct. However the actuality is that the seller has to charge the correct VAT for the place of consumption on the sale and collect the VAT. So a seller has to manage 28 different VAT rates and then ensure that all the documentation is submitted correctly and data kept for 10 years.
    PLUS there is a zero threshold on this EUVAT tax, so NO threshold as there is on distance selling of goods & services. If a small business sells a £5 digital knitting pattern, which, although in digital format, is essentially to the purchaser the same product, because it serves the same function as a paper pattern, EUVAT applies from a zero threshold on the digital product.
    This is wrong
    However what you fail to point in your article is what the EU plan in the future. An online presentation from HMRC in June 2014 clearly concludes with:
    The Commission, after an in depth assessment, intends to propose a
    progressive extension of this concept:
    ‰ *Other B2C services and B2C supplies of goods (notably distance
    sales),
    ‰ *Consignments from third countries not subject to customs duties.
    ‰ *Agreements with third countries on administrative cooperation
    and / or bilateral / multilateral One Stop Shops.
    So when do HMRC & customs and the UK gvt intend to tell small business who export goods, carry out distance sales etc. Will the threshold for these sales also be zero?

  4. Unfortunately a number of errors are contained here – you say that no-one needs to be familiar with the VAT regimes of each country – in fact you do. MOSS simplifies the process of making a return but the trader still needs to be aware of the rates of VAT applying in each country to each item they are selling – ebooks are standard rated in the UK but charged at a reduced rate of 4% in Italy – were you aware of this? The one stop shop is a return requiring details of sales made the VAT rate and VAT due for each country it does not and will not ‘calculate your VAT’ although you will be liable in sterling. You say you will not need a VAT number – this is correct for the Republic of Ireland who permit separate registration but is not true for the UK – and many small traders attempting to register for VAT but only for their EU sales are not being allowed to by HMRC computer systems that are not up to the job and staff who have not been trained. I should add that most tax experts are very suspicious of the ‘fudge’ concerning UK registration as it does not comply with either UK VAT law or EU directives. You will have until 20 April to make a return but that is solely because the first return covers the period to 31 March, hardly a concession! Registration would have to be effected by the 10th of the month following that in which the first sale takes place, so for many traders the effective deadline is 10th February, if they miss that deadline they have to register in each country in which they make sales. The Apple and Android App stores accept that they are a platform caught by the new rules but Etsy acts as a disclosed principal and so believes that the new rules do not apply to it. And it is not a question of ‘calculating the VAT for you’ – where a sale through a platform takes place the supply by the small trader is B2B, business to business, and the platform sells to the customer – that is why they are liable for VAT. I’m sorry to have to point out so many errors but these platitudes do not address the very real concerns of very, very small businesses where not only will their costs of compliance often exceed the benefit of the sales they make but the costs of administration and compliance for HMRC and the other EU tax regimes will likely exceed the revenues they could collect. A sensible de minimis threshold exempting only very, very small businesses is surely the only sane solution to a mess created by governments and revenue departments not even being aware of the existence of these small businesses…

  5. Richard,

    1) You talk about how this change will remove a competitive advantage that large businesses had. However, what you perhaps fail to realise is that in fact this change is a huge boon to the large companies. Allow me to explain. Big companies like Amazon can take the hit on profits that an increase in prices will lead to. Amazon can also handle the technical and administrative aspects with these ease. But guess what? Small companies a) can’t take the hit on profits and b) don’t have technical teams to make changes to their ecommerce systems to make them complaint and c) don’t have teams of accountants and bookkeepers to take care of all the paperwork. So guess who goes out of business? Amazon? Or the thousands/tens of thousands/hundreds of thousands of small online businesses who were perhaps just able to compete with Amazon before? But have now been shot by the very legislation that was aimed at bringing the Amazons of the world down a peg or two.

    2) I am not making the above up. Amazon have stated that they welcome the changes. They know they can handle it and that smaller players can’t.

    3) If this change was really about getting large multinational corporations to pay more tax, an initiative i believe in, why was no threshold included? It would be very simple to add a small-seller exception according to which all sellers with annual revenues below €100,000 for example, are exempt. Amazon et al would still be unable to base themselves in Lux for tax purposes, and small businesses would be able to grow to the point where they could take the hit.

    4) There are many other issues with the new law I haven’t even touched upon, just so you know.

  6. It is not as easy as you might think to use a third party platform. Some of them do not seem to have any intention of complying with the changes in EU VAT and those that do have struggled to comply within the alotted timescale.

    There again would you tell someone who sells the produce they grow on their own farm that they have to arrange with the supermarkets to sell it for them because the law has been made so onerous that they can no longer run their own farm shop. In effect that are what you are telling a whole section of the business community to do.

    Have you checked out Etsy for yourself? Last I heard they were not compliant and some were wondering if they were going to even try to become complaint

  7. Hi Richard, I’m pleased to see that you and your colleagues will be lobbying the government. The law was passed in 2008, by your party. Why was there no consideration then to the small and micro business owners? A lot of this could have been avoided if the impact assessments etc had been done correctly in the first place.

    Many micro businesses have closed down thanks to a lot of EU incompetence about how micro businesses work, and many MPs have sent cut and paste responses to their concerned constituents who’ve contacted them. Almost all of them mention how this was intended to capture bigger companies, which I should imagine is no comfort at all when your livelihood is about to be taken away.

  8. Thank you for reposting this Richard, and it’s a shame the comments were lost. However….

    On the clarifications and assurances.

    Bullet 1 – It will be necessary to understand the application of VAT as we need to apply the correct rate to the net price we are charging before the sale concludes. In some territories the rules are complicated – for example Spain has a different rate of ebooks with an ISBN number than those without it.

    Bullet 2 and 3 – HMRC guidance on registering when under the £81,000 threshold says that you do need to register for VAT in the UK to register for MOSS and you can then make nil returns in the UK. I’m unclear as to how that’s allowed under VAT legislation as that requires companies to deregister if they fall below the threshold or continue to pay and reclaim VAT. Aren’t VAT registered companies also obliged to charge VAT? If it is covered in Legislation could you clarify under what sections of the relevant act?

    Bullet 4 – This is true, but any sales made up to first return must be made with clarity on the VAT charged, and with the correct invoicing, this may not be possible as some payment gateways and shopping carts do not provide the facilities to do that.

    Bullet 5 – Etsy have made it clear that they will not support reporting of VAT and that they are a venue, not a marketplace. For those who use this platform there’s significant uncertainty. If HMRC have assured you that they must provide that information and they do not, claiming it is their sellers who are responsible who ultimately will be liable?

    This legislation was written at a time when there were not significant volumes of digital product sales but in the 7 (seven) years since it was devised the internet has developed significantly. The implementation has been made without consideration of smaller businesses and without the consideration of the administrative overheads. Significant numbers of micro businesses have simply stopped selling in Europe and that’s both anti competitive and not in the interests of the UK or Europe.

    I would urge you to press for a minimum turnover threshold under which it is not necessary to make or reclaim VAT in any country, perhaps at the level of local thresholds that already exist. Under the old system the UK threshold of £81,000 applied across all European sales as we were taxed on the businesses place of residence, over that amount we had to register and pay VAT. It seems reasonable to me that this same rule applies even though the VAT that then applies would, of course, be based on the place of supply for digital goods and the place of business for all other goods.

  9. Hi Richard,
    We strongly suggest you check the latest facts before you publish on this topic. Expect lots of angry comments from people whose businesses have been devastated by this legislation, whose problems you seem to think can be fixed by ‘clearer guidelines’.

    We understand that this is the second time you have published this article, due to a website problem. Last time you came in for flack for not taking the time to appreciate the severity or the urgency of this issues.

    It is clear that you have still not done that.

    We even offered to take your communications manager through the issues, so you wouldn’t publish anything embarrassing again, but he has not responded to our offer.

    Here is what you need to know:
    http://www.euvataction.org/updates

    And here is the 22,000+ strong petition for Pierre Moscovici:
    http://euvataction.org/take-action-now/sign-the-petition/

    We are already actively supporting a number of MEPs as they campaign to get emergency amendments to this legislation, to stop their constituents from going out of business.

    We would be very happy to work with you, too.

    Best wishes,
    Clare Josa & the EU VAT Action Team

    • Dear Clare,

      Thanks for your feedback. I know Richard plans to respond fully to the issues raised by comments on this post, but since you mentioned me in your comment and I am the administrator for this site, I wanted to reply to you directly and address at least the procedural issues you raise.

      As you know, this site was attacked by hackers over Christmas and some recent content was lost. We were aware that this post in particular had attracted some debate in the comments section and so we were keen to reinstate it. In fact, Richard asked me to repost all the lost content exactly as is, including this post, to avoid any suspicion that we might have wanted to quietly remove it in the light of the lively discussion it engendered. I know one or two people had expressed that suspicion and I was very keen to dispel it.

      Richard also asked me to add a note to the top of the post indicating that it was out of date, and that further concerns about this issue had been drawn to his attention since then. Richard is looking into those concerns and he will be updating his blog regularly in the light of these.

      I’m afraid I haven’t received any communications from you, but we have recently moved offices in the UK so perhaps your invitation to discuss this will be waiting for me in the new office. In any case, I would be pleased to talk to you directly about this issue. My email address is toby@richardcorbett.org.uk.

      Best wishes
      Toby Wardman
      Head of Communications

  10. Thank you for writing about this issue. However, you don’t seem to have addressed the following issues:

    1. The data collection requirements for the prof of the place of purchase. Most payment providers and web platforms are not set up to provide this data and so far have not adapted. For example, Paypal issues a statement saying they only supply one piece of info (country code).
    2. The possibility that the above requirements contradict the requirements of the ICO for data handling.
    3. What businesses are to do while they are waiting for clarification and for the other companies involved in fulfilment to adapt to the new law – stop trading?
    4. You assume that it is a simple process for small businesses to separate out their UK and non UK sales. Not so.
    5. What protection do businesses have against fraudulent or misleading information provided by the consumer on their place of purchase?
    There are many more issues currently being discussed on the EUVAT Facebook group which I hope you will take the time to read.

    Thank you.

    Kind regards

  11. Thanks for this article. There are a few inaccuracies and oversimplifications, though, which you should be aware of.

    Bullet 1: “You will not need to become familiar with the individual tax regimes of all 28 member states”. The HMRC guidance on MOSS makes it clear that they register you with other tax authorities and distribute payments, but you still need to know all the tax regimes:

    “Select a country from the drop down menu, enter the total value of supplies (excluding VAT) and the appropriate VAT rate (eg, standard VAT rate or reduced VAT rate). The VAT amount will be calculated automatically for you. If, due to rounding issues, it is different from the figure you have calculated, you can overwrite the VAT amount due.” Source: https://www.gov.uk/register-and-use-the-vat-mini-one-stop-shop

    This makes it clear that you do need to know the appropriate VAT rate, out of a possible 75, which includes knowing things such as Italy charges 4% on ebooks with ISBNs and 22% for those without, and some regions (eg Mount Athos in Greece) have different VAT rates. Even the EU’s PDF of VAT rates is out of date (dated 1 July 2014).

    Bullet 5: “If you trade through any online platform, like Etsy or the App store, then you will not need to register.” Etsy has explicitly shrugged off responsiblity for VAT (Source: https://www.etsy.com/uk/help/article/5971?ref=help_search_result) as have other platforms and marketplaces, including Squarespace, Shopify, Selz, Payloadz, e-Junkie, FreeWebStore, Gumroad, Create. net, Crafty Magpie, Storenvy, IndieMade, DPD, DaWanda. They’re also not equipped to allow the seller to do it: Etsy disallows VAT rates higher than 25.01% and most platforms and providers don’t give you the 2 pieces of non-contradictory customer location data you need.

    It should be noted that the points made in bullets 2, 3, and 4 are concessions due largely to the campaigning work done by the EU VAT Action team (see http://euvataction.org/updates/ for details of meetings and changes) and apply only to the UK, not EU-wide or worldwide.

    The original issue of getting and safely storing 2 non-contradictory pieces of customer-location data still remains. As of 29 December (2 days before compliance!) HMRC has said that UK businesses under the UK VAT threshold can use the information our payment provider gives us, but only until 30 June 2015. After that date, however, we’d need the two pieces, which payment providers won’t give. That leaves two options, to continue selling
    1. Build your own ecommerce site. That’s unfeasible for most people, clearly. It’s also extremely risky for everyone concerned!
    2. Only sell through marketplaces or with the various widget add-ons, which take an additional commission. That’s too much for many people’s profit margins and effectively criminalises independent selling, by making it impossible.
    In EU VAT Action’s survey, 60% of those surveyed sold independently, through their own websites.

    These are just some of the outstanding issues – I’m sure, once the other comments have passed moderation, they will address others.

  12. This whole thing seems to have been very poorly considered and there is a great deal of anger at the rate defaulting to zero rather than £81K. It is going to cause a lot of confusion and expense for small businesses and I know several who are planning to close altogether. What’s the point of having a national VAT rate if it is not abided by?

  13. I haven’t started selling digital pdf versions of my quilting patterns yet but plan to do so, using Payhip as my selling platform, as they are one of the few appropriate platforms I have found that have a reasonably low commission rate and have assured sellers that they will handle the VAT for us. This will not be the major part of my one person quilting business, so I do not want to have to register for VATMOSS and it is far less onerous in terms of my work time, for the very small amounts of VAT I would expect to have to remit to the EU (the USA and Australia are the main overseas markets for English langugage quilt patterns).

    Payhip have come up with a system that allows the VAT to be added to the base price on checkout, which in my opinion, is the fairest way to do this. It seems discriminatory in the extreme for me to sell at a fixed price everywhere in the world now, as I would be profiteering from the fact that a buyer is based in the USA (no VAT payable on the sale) versus a buyer from Hungary (paying 27% on the same item). I do not want to discriminate based on geographic location by basically overcharging some customers to the tune of an extra fifth or even a quarter of the retail price of the pdf.

    But there is a problem. UK law (and I think EU law too) says the price displayed to the customer must be the price they pay on checkout i.e. it must include the VAT. Now, unless Payhip are going to change their system so it can automatically recognise whereabouts a customer is in the EU when they first arrive on the site and display the correct VAT inclusive price for that pdf accordingly, I cannot fairly charge the customer the correct amount of VAT, as I would have to display ONE fixed price only.

    There is much about this new legislation that is very ill-considered and forces a seller to fall foul of other pieces of legislation in trying to comply with the new regulations.

    There are many, many other issues I can think of. For one, I am not at all happy that, when I buy from a small business, they will (if they are handling their own VATMOSS returns) be storing my information for over 10 years. Even the big corporations have problems doing this securely and this part of the new regulations would seem like a gift to hackers and online identity thieves. Another point is that VPNs allow people to hide their actual location when using the internet, and once people start to realise that they can use these to get a lower VAT rate than applies to their actual location, it will become known very quickly as a way for people to get around VAT. Yet another is that, while these regulations were brought in to hit the likes of Amazon, there is no threshold for small businesses at all and, in any case, the purchase of a Kindle eBook via Amazon is a very different product from purchasing a pdf e book from a small seller (which can be read on any device) – Amazon control the Kindle reading device and have power to remove eBooks from the customer’s account, so in all senses when a customer buys a Kindle eBook they are effectively buying a service and a licence, the only actual item they own being the Kindle reader. The Kindle wasn’t even launched when the initial plans for this VAT legislation were first considered (2006) and the internet trade has progressed a long way since 2008.

    I could go on, but I am sure other comments will point out many other things. The fact that information about this new legislation wasn’t even sent out to people via HMRC and most only got to know about it via social networks in late November is a disgrace in itself.

  14. VAT is a con trick

    It is great ploy used by big tax avoider companies to claim that they are not avoiding tax, milk the consumer (they are not VAT registered) and the small business (also not registered)

    ” We pay £X,000,000 in tax therefore we are not tax avoiders” but

    how much of that is income tax (which your employees pay you just deduct!
    how much of that is national insurance (see above)
    how much of that is VAT (which you dont pay you mererly collect off your customers)
    How much of that is corporation tax ?

    This is completely stupid and almost impossible to police and will be a total waster of EU tax payers’ money as the additional resources required will be PHENOMENAL

    LETS GO INTO THE REASONS WHY THIS IS STUPID

    BYPASS
    anyone with half a brain will find ways to bypass this and make your system a mockery

    I have two business degrees but am not a VAT expert – I am already planning on implementing half a dozen to ten methods which will make this additional expense go away (not saying how!) – however each one will take 6 months for the authorities to fight over all with PR from those idiots at UKIP Nigel Farage will be on speed dial (even though I can’t stand the guy!)

    Point being, if I can find dozens of loopholes, what will a VAT expert do?

    COST AND TIME POLICING

    in the case of micro businesses, in the UK alone there are about 460,000 of them

    assuming each one of these will take about a day to assess, that is 460,000 days
    so focus on just 10%
    this leaves just 46,000 days – JUST!
    at 200 working days a year, this is 130 staff full time and well paid to check on one man bands! they will need to be trained up AND continually updated as to new rulings brought in (as there are so many holes in this it will need more work to “try” to make workable!)

    Then it gets more complicated

    Step 2

    ADD the ENTIRE EU of micro businesses – check their sales to every other EU country and every VAT rate going to make sure the appropriate rate of VAT is being paid
    130 staff becomes c 3,640 extra staff —-

    Step 3
    ADD THE ENTIRE WORLD of companies and check their sales to every EU country and every VAT rate going

    Good luck in checking companies in Asia. Africa and the Americas too!

    In other words – outside of the EU = will be ignored!
    thanks for “levelling the playing field

  15. Alison May of BrocanteHome has taken her website down and states in the holding page it’s due to EU changes – http://www.brocantehome.net/
    She has been selling online for ten years, and makes her whole living, to support her and her son, by selling online downloads. Her last newsletter was entitled “Brocante Home is closing down”

    CONGRATULATIONS EU VAT LAW!

  16. I have a very small digital scrapbook supply business.
    Meaning: I design scrapkits and sell these for $ 2,50
    So if a customer from Italy buys one, I have to pay some percent to Italy goverment?
    Next customer comes from Sweden ….
    Maybe in a few months I have sold to 30 customers from 15 EU countries and no more time for designing because of the administration!
    And do you really think the Italian, Swedish and other governments are happy with my few cents?
    Please make a treshold for all our micro- and small businesses!
    best regards
    Els AW
    the Netherlands

  17. It’s probably worth mentioning that a whole tranche of stakeholders weren’t consulted before this came into effect. It would appear that HMRC only consulted digital sellers who were already VAT registered!

    A huge number of micro-businesses simply dropped off the radar, presumably because of the mistaken assumptions that they’re too small to sell into Europe (which they’re not), or they will use a market place (which is proving to have its own set of problems).

    So, having been ignored, having had a whole set of admin burdens put in our paths, and (as I explained in my earlier comment) all for sums of output tax that will be completely trivial and cost more to process than the amounts raised – it’s not surprising that some of us are a little heated.

    This is something that now needs urgent action to fix – and that doesn’t mean the creation of a VAT implementation sub-committee with a remit to report in 2019 – but someone to grasp the problem and put in a temporary fix so that people here can continue trading. It also means that steps need to be taken to ensure that the same problems don’t occur next year, when EU VAT is applied to the sale of physical goods.

  18. ad an interesting phone conversation with someone from the US Export Assistance Center in Birmingham, AL. He knows I’m a very small business with a physical presence in only one state, selling PDF crochet patterns. He stressed very highly that the decision on whether to comply with this legislation is a business decision, not a legal decision.
    He did say he appreciated me raising the legal and other questions I raised, and the explanations of how this legislation places an unfair administrative burden on small businesses and an impossible-to-comply-with technological burden on many small businesses as well.
    EDIT: He also said he can’t give legal advice, which I understand, but he was also unable to point me to any specific legislation, treaties, or trade/tax agreements that would answer my questions.
    He isn’t a policy-maker, but he has passed all my detailed concerns all the way up the chain to the policy makers who will be in heavy discussions about this over the next couple of months. He fully understands how it will be utterly impossible for small businesses to comply if similar legislation is passed by every country in the world.

  19. Wow, another uninformed MEP…

    Firstly, the One Stop Shop idea is not HMRC’s idea or any kind of help they have arranged. It is an integral part of the new law and a condition for each member state.

    Secondly, we all support the concept of making the tax system more fair and stopping corporate abuse. But applying tax and all the admin requirements to the smallest business (smaller than you can imagine) on the same basis as Amazon is, quite frankly, a victory of ideaology over common sense. The costs for everyone compared to the benefits (from very small businesses) are substantial, never mind the general effect of propel having to spend hours doing paperwork when they should be feeding their families.

    Thirdly, your lot, in labour, were in power in 2007/8 when this idea was voted on. Apparently we supported a threshold, others didn’t, so you caved in and signed, that tells us all we need to know about your financial prudence and the amount of ‘fight’ you have in your party when you need to support YOUR citizens. In this case, to quote a line from Yes Minister, it’s YP

  20. A side effect of this legislation is American and Australian businesses are no longer supplying to the EU simply because it is not worth the time, nor are the mechanisms in place for them to collect tax on behalf of the EU. Next year when this legislation applies to all goods not just digital downloads, I shall not be able to buy the fabrics for my craft which are unavailable in Europe. This legislation is limiting trade and creativity.

  21. I’ve read the rules is great detail and it’s not true that we don’t have to know the VAT rules in 28 different countries. In order to charge the right VAT, we need to know the rate (or rates) in each country and which goods those rates apply to. We also need to know their invoicing rules (something that is very hard to find out). For sales that might be business to business or business to consumer, we need to know the rules applied by each country to decide whether a sole trader or freelancer who is not VAT registered counts as a business or not. On top of that, we need to keep a constant watch for changes in rules and rates. For instance, Italy has just introduced two rates for ebooks – a low rate for ebooks with ISBNs and a high rate for those without. All this is totally impossible for very small businesses and sole traders and the potential penalties for failure are horrendous.

  22. Richard – Thanks for at least addressing this now, I’d like to add my voice to the protestors against this idiotic law and the worldwide trading ramifications – for example, will we shortly have to charge reciprocal individual US state purchase taxes ? Australia’s? China’s etc???- The US is expected to collect ours under this scheme. It’s an overcomplex nightmare actually benefiting the big players you hoped it would control.

    Please place a Europe wide threshold at least so micro businesses can run – and / or levy an EU wide rate that can be applied at point of sale as before. It’s difficult enough already and next year when all physical goods are supposed to come under this scheme, means we will strongly consider closing our online business of 12 years. At the moment we have suspended sales, now need to expensively redo our website so we can shelter under an VAT compliance agent such as taxamo, at the moment etsy and ejunkie, paypal won’t undertake this. Surely a higher EU VAT threshold at the rate of say £100,00 turnover and making all payment providers responsible is a workable solution.

    Please continue to represent us – I’ve emailed my conservative MP and joined the facebook capaign; apparently next week there will be a twitterstorm. I’ve emailed BBC’s You and Yours – btw why isn’t this being covered by the media – can we all lobby consumer programmes too ?

  23. Hi Richard.

    This newly released (escaped?) official EU document shows the complexity of VAT across the whole EU:
    http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/how_vat_works/rates/vat_rates_en.pdf

    EVERY company, every individual, who sells in the EU must now be familiar with the detail of this document. I simply don’t see how this level of complexity helps micro and small businesses, nor do I see how this will curb the power of Amazon and the other multinationals when the reality is that they’re in a position to employ the professionals who can handle this complexity?

    BTW. This is an official document, yet it starts with this massive disclaimer:

    N.B.: The purpose of this document is to disseminate information about the VAT rates in force in the Member States of the European Union. The information has been supplied by the respective Member States, but part of it has not been verified by some of them yet. The Commission cannot be held responsible for its accuracy or completeness, neither does its publication imply any endorsement by the Commission of those Member States’ legal provisions.

    So it appears that even the EU can’t be sure about which rates apply to which services in which country, but you can be sure that if a company makes a mistake in implementing the rules then the authorities will be down like a ton of bricks.

  24. VAT causes untold damage to the economy. Running a window cleaning business you think you can add vat to someones bill? Of course you cannot and so its simply impossible to expand. And this same impossibility exists for many business’s.

    I would say the VAT tax for many small business’s is ultimately unlawful for the very reason that it does indeed create an impossibility and its a maxim in law that no one can be expected to do the impossible, and it could indeed be proven beyond reason that is impossible to charge VAT without doing out of business’s.

  25. Just a thought..

    But the reason given ‘leveling the field’ is disingenuous..

    Could the real reason be the forcing of micro businesses on to Amazon’s et al websites to sell their wares?

    Lets face it if only the big players can cope with the new rules what ‘leveling the field ‘ actually means is millions in commissions to Amazon, Ebay etc..

    If your normal selling practice is effectively made criminal then the only options are to capitulate to Amazon or shut up shop..

    Etsy & others will not take the hit!

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