As noted by Mark Chapman on 15th December 2014, the VATMOSS VATMESS had the potential to cause untold problems for small digital sellers. The following is the personal experience of Sharon, Pirate Party member and small business owner, which bears out the concerns and issues.
This is a personal account of my experience and knowledge of the new rules.
Having run my own web design business for six years, and in the process of expanding into online courses to generate income, imagine my total surprise and shock when I started seeing news circulating in November last year about new rules coming into force on 1st January 2015 regarding B2C digital sales to the EU.
Previously to that date any digital sales charged VAT at the rate of the seller’s EU country, from the 1st January 2015 any digital sales (without significant human input) should charge VAT at the rate of the buyer’s EU country - and then pay the VAT back to the relevant country. Anyone see a problem here? So many countries, so many more VAT rates.
Once the news started to break it caused uproar amongst the small, micro, and nano businesses in the United Kingdom who sell their products through the internet to curtail overheads. These are often business run by women, from their home, selling knitting patterns, online courses, and so on. Other people affected were musicians, authors, and artists who sell their digital creativity online. It turned out that companies registered for VAT in the UK had been kept informed of the new rules, however it seems it did not occur to anyone that this new rule would affect more than a small percentage of non-VAT registered businesses.
In fairness, the UK has set up the VAT MOSS scheme whereby you register for VAT, register with the MOSS scheme and they take care of distributing the VAT you have charged to the various countries as applicable. Great eh? Except …
Note the requirement to register for VAT.
This means that no matter whether you earn £10,000 per year (which a lot of these businesses don’t earn anywhere near) or above the UK VAT threshold you have to register for VAT and comply with all the administrative requirements that entails. So, from either doing their own accounts to save money or, as in my case, paying an accountant to complete your accounts and tax return we all now have to complete the paperwork for VAT once a quarter. This is beyond most of those doing their own accounts and will increase costs for those who use an accountant. For most of us this simply is not worth it for the small amount of income generated from EU countries. It also means that, as I would be registered for VAT I would then have to charge VAT to UK residents - which means a price increase for my clients.
Further to the VAT burden there is also the problem of identifying which EU country your buyer is from. Legally a business has to collect two separate identifying pieces of information from the buyer in order to ascertain which country and therefore how much VAT to charge. Plus, and this is very worrying, keep that data for ten years. Previously, with digital sales, there was no need for the vendor to even know this information. Asking a person who works part-time from their laptop on a kitchen table to comply with this is beyond a burden, it also generates concerns over privacy and data protection.
This legislation also only covers EU countries, it seems there has been no agreements for compliance drawn up with anyone outside the EU which means that, potentially, while EU businesses are charging the correct VAT rates and shouldering the additional admin costs, there is nothing in place to enforce a business in, say, the USA to do so. Meaning that they could undercut EU prices.
Having been following this #VATMESS and reading accounts of people contacting MPs and MEPs it has become apparent that, beyond most not even realising this would be a problem for so many businesses, they have no real idea of how all the extra admin and costs will affect us. They seem to think it will be a simple matter for us to comply. It also seems that, as it was 2008 when this was first discussed, nobody then or since considered how the internet would (has) changed in the intervening years.
Of course the other option for those affected is to use a third-party to sell our products, yet this also cuts into profits as that third-party will want a cut and often control prices. You know what’s the kick in teeth for us with this? The legislation was created to prevent big businesses (like Amazon) from setting up in a low VAT-rate country such as Luxembourg so they could avoid paying more VAT. Guess which third-party seller is one of the main options. Go on, guess.
eCommerce Europe has suggested 3 recommendations which will help those of us affected -
harmonisation of EU VAT regulations
SMEs should benefit from exemption of VAT regulations up to 100K Euros per destination country
a pan-European one-stop shop rather than separate ones for each country
These seem sensible and workable solutions but it will take time to get them into effect. In the meantime people are being affected now and going out of business.
If you need to know more then these links may help.
One Man Band Accounting is collecting and collating information and is a part of the campaign to get this all sorted.
EU VAT Action Group on Facebook. A closed group of over 1000 members but if you’re affected do ask to join as there’s lots of discussions.