EU VAT law could kill thousands of online businesses New EU tax rules that come into force on 1 January could kill thousands of mini and micro online businesses. The new VAT rules have been on the cards for six years and are ostensibly aimed at preventing big companies (yes, we mean you, Amazon, Apple and Starbucks) from claiming that all their European profit is made in …
…from claiming that all their European profit is made in Luxembourg…
Nitpick: this change is not at all about profits, which are still going to happen in Luxembourg. It's just that now the country of the customer will get VAT.
That said, I suspect the new rules will simply not be enforced for small businesses for a while. It seems impossible they will be ready any time soon.
As I understand the plan is already in place to expand the new rules to all goods and services sold online - digital or physical, bespoke or prepared - as soon as 2016.
Basically, if you run a business that sells anything over the internet, this is going to affect you. If you're selling direct, it'll all but force you to do your business through a corporate platform that will handle VAT instead, and if you're already using those it'll make your income less predictable as the VAT share of the sale price will suddenly vary depending on where the sales come from. Not to mention that many of the big platforms (Etsy, Steam and Bandcamp spring to mind) haven't commented on whether they will handle this for sellers, and some have already said they won't (iBooks).
This is going to bite small bands selling mp3s, comic artists selling ebooks and those kinds of people *big* time. Freelancers and independent artists don't usually have trade orgs or any other kind of organised representation, so "missing" them in these considerations and the discussions HMRC say they've been having with SMEs is an easy oversight, but the impact on them is huge.
Basically, a business that doesn't make enough to afford an accountant and sacrificing margin to third-party sales platforms to do the work for them is going to be all but shut out entirely from the digital single market that Andrus Ansip praised so highly in his blog post. Good work all round.
VAT in Luxembourg generally is 15% (which is considered "unfair" by neighbors who can barely squeak by ripping off 20% of any transaction from the jobless hoi polloi), and will be upped to 17% in January (because the governement wants to keep the overpaid civil servant cancer happy more than it wants to reduce unemployment), so I don't see why VAT is a particular factor for Luxembourg.
What is being missed is that Luxembourg set a very low, but non-zero, rate for VAT on ebooks. A lot of EU countries have lower rates for such products, but Amazon is paying a rate of 3%, the lowest in the EU, and I don't recall them ever telling me what the rate is, they just tell us VAT is charged, which is one of those legally murky areas. Italy, next year, reduces their e-book rate from 22% to 2%, and we have always had a 0% rate on physical books in the UK.
It looks as though some guy called Juncker was involved in setting the rates in Luxembourg.
One of the awkward points is that two pieces of data confirming customer location need to be recorded. For physical goods, which have always been under some form of customer-location rule, there's both the record of payment and the address for physical delivery. But what's the equivalent for digital goods?
The more I hear about this (and I used to do VAT paperwork for a small business), the less competent HMRC and the government look in negotiating with the rest of the EU and explaining the changes. Surely six years is enough time for them to have done something?
It is currently a pain, when we buy over Amazon at work. There are many UK vendors in the Amazon store (Germany) and there is no VAT excemption here, so every purchase needs a valid VAT number... Which means many purchases get sent back or we spend ages going back and forth trying to get a valid VAT number.
The upshot is that we tend to avoid any reseller that doesn't have a valid DE VAT number in their company details section. It might be more hassle in the short term, but it could open up more sales in the long term for companies in the UK that don't have a UK VAT number, if they have to ensure that they have a local number in the countries they sell in.
I had forgotten that Amazon also sell digitally. It was easy to forget; the .co.uk and
.com Amazons refuse to sell these to me in Spain. Meanwhile the .es Amazon just refuses to sell them.
Also reading the comment from big_D - here in Spain you have to be registered for VAT from 0€ upwards (oh to have an exception for small players like the UK!). This has the side effect that all payments that go through the books must match with a corresponding invoice with Spanish or European VAT number. In addition, if VAT is charged by a European overseas seller (which it shouldn't be under inter-community trading rules), we have no way of claiming it back. We have found a lot of VAT registered companies who refuse to do VAT free sales. In this regard, Amazon actually do everything properly.
There are two kinds of seller profiles you can make on Amazon: one for an individual and one for a business. Each one costs a different amount and has a different set of benefits. For example, if you expect to sell less than 40 items each month, the individual plan is the best choice because there is no monthly subscription fee. On the other hand, Amazon charges private sellers 99 cents for each item they sell.
If you think you'll sell more than 40 items every month, you might want to switch to a professional plan. Amazon no longer charges sellers 99 cents per item, but instead a flat fee of $39.99 per month. If you are a professional seller, you only have to pay shipping costs for media. You can also wrap all of your products as gifts. In the same way, there is a lot about Amazon Account Management that you need to know. Even though you are just starting out, you still need to know how your Amazon account works.
This is entirely reasonable. VAT is a tax on consumption, paid for by the consumer. Of course it should depend on where the consumer lives, not on where the business is based. The upshot is, of course, that if you want to be a "small business" that is also multinational, you cannot pretend that different countries don't have different laws.
Most people, on here as well as elsewhere, seem to think of the Internet, and all who sail in her, as being a separate entity, not subject to the laws of anywhere. But if I buy a printer from a company in France, whether I do it by phone or online is irrelevant. If I phoned them up I would be paying UK VAT, and why should online be any different?
Here's another way to think about it: when is the contract formed on a sale of a loaf of bread in Tesco? Not when I take it off the shelf: that's an invitation to treat. Not when it's rang up on the checkout: that's confirmation of the invitation. Not when the money is given over: that's an offer. The contract is formed when the goods are given to me, the acceptance of the offer.
This is important in the recent Amazon 1p case: the contract of sale is not formed until the customer has paid, AND the goods have been delivered to the customer. If the delivery driver gets a call at the end of your road to cancel the delivery, the contract has not been formed. Since VAT is applicable at the formation of contract, it is where the consumer has their goods delivered to that is the location for VAT. Amazon has been essentially committing fraud, and the rules have only been "changed" to clarify that Amazon (and others) are wrong.
All of this applies to digital delivery as well: the contract is only formed once the good has been downloaded onto the user's machine, and so VAT should be payable in the customer's location.
Edit: to clarify what others above have mentioned, Amazon will pay UK VAT on any deliveries to the UK, regardless of where they are from. See:
http://europa.eu/youreurope/business/vat-customs/cross-border/index_en.htm
DavCrav,
As a simple Engineer, all this law stuff is news to me, and very interesting! I had not thought of the exchange of goods and services in such detail. Could you point me in the direction of a source for this material, or is the above a distillation of many? I am suddenly curious about the details...
It has given me a greater appreciation of delivery notes, and possible queries about having parcels left with a neighbour, or a supposedly 'safe location'. Are the seller's part of the contract completed at that point? The more I ponder, the more questions I have.
No, the contract for an online order is normally formed when the goods are dispatched, not when they are delivered.
From Amazon's terms of sale (which I'm sure you read if you've ever shopped with them, right?):
Your order is an offer to Amazon to buy the product(s) in your order. When you place an order to purchase a product from Amazon, we will send you an e-mail confirming receipt of your order and containing the details of your order (the "Order Confirmation E-mail"). The Order Confirmation E-mail is acknowledgement that we have received your order, and does not confirm acceptance of your offer to buy the product(s) ordered. We only accept your offer, and conclude the contract of sale for a product ordered by you, when we dispatch the product to you and send e-mail confirmation to you that we've dispatched the product to you (the "Dispatch Confirmation E-mail").
Agreed, what the original poster was forgetting is that delivery is part of the service you are buying (it may be 'free' but it is still part of the contract you have formed with them. So by shipping it they have accepted the delivery part of the contract and thereby the whole of it.
Of course they could still call the delivery driver and get him to return and just breach the contract - if they refund you the money you're generally going to struggle to get anything else out of them beyond 'good will' gestures for their breach of it.
It doesn't matter what Amazon (or any other company) puts in their terms of sale -
Law trumps contract every time,
Without exception.
It does mean you will probably have to resort to the courts if you have a valid complaint, but that's what they're for!
It also raises the possibility that if Amazon (or other company) have been deemed to have breached the specific clause relating to formation of contract, then the entire contract has been breached. Although that one's not a given, you'd have to argue about it.
Whilst I agree with you in principle, its currently unworkable for a number of smaller businesses.
I'm ceasing sale of digital downloads, not because it's impossible for me to comply (it isn't), but because it's simply not cost effective to comply. The time spent reconfiguring the shop to know, and apply, VAT for 28 different states is time that'd need to be taken from much more profitable work.
Similarly, the ongoing cost of completing yet another return again is the same - my schedule is rammed full, so its a case of spending time doing a return instead of charging an hourly rate.
Realistically, it's a tiny drop in the ocean, but the UK govt will now be getting less tax out of me as a result (the VAT may not have been payable, but the income tax was) and the other member states still get no more out of me.
Is me stopping digital downloads going to hit our GDP? Hell no, but it's not quite as black and white as you seem to think - there's a cost to compliance, and those who don't shut up shop will be passing it on to us as consumers.
Personally, though, I suspect the complaints from businesses will lead to the EU evaluating and deciding the best way to 'fix' the issue is harmonisation of VAT rates.
And yet whenever I've posted the reasons for the internet sales tax exemption (figure 28 different rates * 50 states) in the US, I've been assured that if ONLY we STUPID 'Merkins would adopt the simple VAT tax, the whole problem would go away.
I'd say I feel your pain, but not only would that be Clintonian, it also wouldn't be true since I'm not an online retailer. So I'll just claim I fear for your pain, and do have some sympathy for the problem.
Well VAT was relatively simple until this change...
There is a good introductory article from a US perspective on the change here: http://www.happybootstrapper.com/2014/im-us-whatll-happen-just-ignore-eu-vat-changes/
But for the full mind numbing impact, do look at the "full listing of VAT rates in different EU countries"...
My wife sells knitting patterns on line. Global Turnover less than £2000.
To comply she will have to:
Register for VAT & MOSS. Keep full records[1] and pay VAT through MOSS.
We checked all the sales in November and she had made one sale to Ireland and one to Germany, all the rest were within the UK or outside EU.
So she would have to pay approx. 93p to Ireland and 80p to Germany.
[1]The other problem is they insist on two non contradictory pieces of evidence to confirm where the buyer is. e.g. postal address, email address and ip address. But as she sells through places like Etsy.com and is paid by the customer using paypal she doesn't have the IP address. The email address can be a .com .net. org and the PayPal payment often says 'We have no postal address on record".
Any ideas how she can comply with the law without having to set up her own website?
There is an intra EU threashold for VAT registration of 35,000 euros. Why they didn't incorporate Digital downloads into I do not know.
Also of the estimated 240,000 UK businesses affected 99% of them knew nothing about this until about 4 weeks ago.
p.s. The guidelines are also wrong: https://www.gov.uk/government/publications/revenue-and-customs-brief-46-2014-vat-rule-change-and-the-vat-mini-one-stop-shop-additional-guidance/revenue-and-customs-brief-46-2014-vat-rule-change-and-the-vat-mini-one-stop-shop-additional-guidance
They say "you will need to register as a data controller with the Information Commissioner’s Office" which unlikely to be true.
HMRC did apparently push for a low earnings threshold, given we have one for usual VAT. Apparently, though, most EU countries don't have a threshold so there wasn't much appetite for it. The one-stop-shop is the solution that was used to make it easier.
It's easy to say ignore the rules, right up until you find you're unlucky enough to be being made an example of.
I could quite easily not declare some of my income, but whilst the probability of getting caught is low, the risk far outweighs the benefits. It also only takes upsetting one vindictive person for it to all start unravelling - ignoring the new rules is a foolhardy thing to do....
"Isn't there some kind of minimum total turnover for this law? If not, it should be introduced."
There is, that's the point. It's higher in the UK than it is in much of the EU (or, as in some cases, no threshold at all)
In the interest of EU harmonisation, the VAT registration threshold should be equalised. Based on past examples, that would mean all of the EU members raising their threshold to the that of the member with the highest threshold but since this affects individual countrys tax income, we know that won't happen.
As an example, when copyright terms were harmonised, items out of copyright before the change were suddenly back in copyright because we all had to increase our copyright period to 60 years to match Germany rather than Germany dropping to 50 years like the UK (or lower as it was in some other EU countries). EU "harmonisation" almost always means whatever is best for tax and/or business and worst for the consumer.
"So she would have to pay approx. 93p to Ireland and 80p to Germany"
I have been registered for VAT for twenty years. It really is the easiest system to use and has the benefit of making sure I have my accounts in order every quarter which causes a lot less distress at year end. If only every other gov.uk system was so easily accessible and useful. I am assuming the change makes it fair in that those who did not pay currently vat don't get an unjustifiable advantage when selling to non-vat registered entities (aka real people).
But for a couple of quid why not make your business UK only?
I noticed the effects yesterday when my GoDaddy reseller account (US/Luxembourg) had to be renewed. 20% vat was added automatically. Of course, as a vat registered entity I get that back (and very quickly) which may be an incentive for micro businesses to register for vat so as to reclaim on supplier purchases. No need to wait until you get near £81k.
Or do you think GoDaddy should have continued to have an unfair advantage in selling domains to individuals against British registrars, and micro registrars like us?
VAT is a "Value Added Tax", and the whole idea of is is that at each stage in a production process where value is added, it is taxed.
If a manufacturer buys paper from a factory, he pays VAT because that factory is assumed to have added value to turn wood pulp & water into paper. When he turns that paper into pretty bags he adds value, and his purchaser then pays VAT on the additional cost for adding that value. OK, so the current scheme is implemented through a serious of pay-and-claim-back-when-you-sell steps, but the principle still applies. The added value is taxed.
So, logically, why is the VAT not payable in the place where the value was added? If that manufacturer is in the UK, and the purchaser is in France, the value was still added in the UK. It doesn't make logical sense for the final purchaser to pay the tax in the state where they live, since by definition that final purchaser is adding no value. If that French purchaser walks into the manufacturer's shop in London, buys the product, and takes it home to France, he won't be expected to claim back the VAT at Dover & pay French VAT when he gets home. Why should it be different if he is making the purchase by proxy?
The cynic in me can't help but wonder if this is an EU backdoor to ensure that wealthy countries still get tax income even as their manufacturing industry is exported to cheaper places. If a German goes online and buys a cheap TV that is made in, and shipped from, say, Romania instead of one made in Hamburg, the German treasury will still get the tax.
and the whole idea of is is that at each stage in a production process where value is added, it is taxed.
No, that's just the bullshit they tell you so you'll accept it as a fair and reasonable tax. The whole point of the VAT is to hide from the typical punter exactly how much money the government is extracting from them while at the same time allowing them to blame greedy global corporations for the insane prices the punter pays for things.
But for a couple of quid why not make your business UK only?"
1. How? The platforms (Folksy, Etsy etc.) don't allow that.(Even if we had our own website we would need to implement IP Address geolocation etc to try and block them)
2. Many of the sales are to outside the EU
I shudder to think what rules other countries outside the EU will now introduce in retaliation!
I agree about the relative ease of keeping VAT records for a UK-only business. If you are trading over the internet you should have a computer, and a computer program to automatically do the bookkeeping.
But trading across intra-EU borders was always a bit of a mess. Where is the computer software which complies with the new system? I never switched to a fully computerised system. I'll be honest, it can be a bit gnarly for somebody without some specific training, and my business wasn't making enough transactions to make full computerisation worthwhile.
The businesses being affected by this are being hit by a horrible increase in complexity, with a high transition cost in buying new software, training to use it, and testing it.
> My wife sells knitting patterns on line. Global Turnover less than £2000.
So all that this rule will do is introduce large administrative overheads to EU based small businesses that sell to customers inside the EU.
The simple fix to this would be for small businesses within the EU simply to say "we will not sell or ship to addresses inside the EU". That still allows access to large proportion of the world - even a large proportion of the english-speaking world.
As a side-effect, it also reduces the EU's tax take - but we have to assume that the clever people who drafted this rule saw that coming and decided that was a desirable outcome </sarcasm>
>But for a couple of quid why not make your business UK only?
But how would you know?
If all you get is an email/paypal address how do you know if the visitor to your site is British?
Your foreigner can be quite tricky, some of them even speak English.
You could insist that they explain how to bowl a Yorker or play a few rounds of Mornington crescent, that should catch Jerry out.
"Your foreigner can be quite tricky, some of them even speak English. You could insist that they explain how to bowl a Yorker or play a few rounds of Mornington crescent, that should catch Jerry out."
Your foreigner could be me. I live in France. As a Brit, those questions wouldn't faze me. But send something to me, it's an export.
Oh, and for what it's worth, this is a really dumb way to approach the problem. I thought the point of the EU was to try to remove trade barriers, not erect one so massive that a fair number of people will simply refuse to trade internationally. I can understand wanting to deal with the megacorps paying a pittance in tax, but I can't help but feel that the potential collateral damage is going to be more disastrous than the problem that they were trying to fix.
My wife is in the same position. She's doing her best to keep up with this issue, but virtually daily HMRC's position changes. That idiot Cable said at opne point that it wouldn't afffect many businesses! The latest from HMRC is indeed that if you receive an order and then send the pattern by email rather than an automated donwload, then the new regs don't apply to you. But they'll change their minds in a few days time. It's a fiasco. HMRC also claimed they;ve been making businesses aware of this for 18 months. They have, but only the big businesses which are already in the VAT schemes.
Oh, Cable also suggested that small businessed would have to sell through intermediaries who would in turn be liable under the new regs. For pattern sellers, for example, at a couple of quid a time, and a low turnover, how exactly will that be feasible?
Re the VAT reg comment, that's no use at all. ANYONE selling into the EU is liable for this, including non-EU sites, for example, US sites. So VAT registration has nothing to do with it.
The Flat Rate Scheme (FRS) only applies to your UK business. EU business is effectively outside of the scheme and has to be fully accounted for. Additionally, once you join the FRS, you are required to charge VAT on ALL your sales. No HMRC have at least set up MOSS ( https://www.gov.uk/register-and-use-the-vat-mini-one-stop-shop ) so you only need to register for VAT for EU trading purposes.
I would also advise to approach the FRS with caution, as whilst it is simple, it does have some gotcha's which may be relevant to your business.
There is a must register for the new rules - if you sell to an EU member state then theres no lower threshold of earnings. You can deregister from UK VAT but not from the new rules.
You don't _have_ to use the MOSS though. The EU is more than happy for you to instead register for VAT in any EU country you make sales to.
"This is important in the recent Amazon 1p case: the contract of sale is not formed until the customer has paid, AND the goods have been delivered to the customer. "
That may be the case in the UK, but this whole thing is about the differences in the rules between the different EU members. For example in Spain, the VAT is immediately payable as soon as the invoice is issued. There is no requirement for you to be paid, or for the contract to be upheld. Under a new law, you may be able to convince the tax office to rebate the VAT on something that doesn't end up being paid (although you'll have to wait until the end of the year for your refund, if any).
"VAT is a "Value Added Tax", and the whole idea of is is that at each stage in a production process where value is added, it is taxed."
NO - VAT is a consumption tax. It is paid when something is consumed. Intermediaries in the chain do not charge/pay VAT (and if they do, they claim it back). The idea is that the VAT is charged at the price that the consumer pays, which is normally the higest price in the chain. In your example, the printers buy their ink/paper VAT free, and only if it is sold to a consumer is VAT charged (although in the UK they could claim it is a book, and hence attracts VAT at 0%)
NO - VAT is a consumption tax. It is paid when something is consumed.
VAT is a consumption tax that is charged on added value. The clue is in the name: Value Added Tax.
Intermediaries in the chain do not charge/pay VAT (and if they do, they claim it back).
That's not an and, it's an or. The theory is that they pay, and if they aren't the final consumer they claim it back. Obviously they can simplify this by not paying it if they can justify that they will claim it back later.
The idea is that the VAT is charged at the price that the consumer pays, which is normally the higest price in the chain. In your example, the printers buy their ink/paper VAT free, and only if it is sold to a consumer is VAT charged
No, it is always charged to the final consumer. If the printer doesn't sell the product it becomes that final consumer and would have to declare and pay.
All of this applies to digital delivery as well: the contract is only formed once the good has been downloaded onto the user's machine, and so VAT should be payable in the customer's location.
And if I use my kindle to order a book and to which the book is delivered while I am on holiday in Spain, but my Amazon account is registered to a UK address, where then would you expect the VAT to fall?
The transaction has been conducted and completed entirely in Spain, between one UK based entity (me) and one based in Sarl (Amazon).
I agree with most of your post, but to suggest the location of the receiving device be the sole arbiter for VAT jurisdiction creates a rather interesting issue. What if I buy 100 albums and post my iPod to a colleague in New York, who downloads the music his network in America and sends it back. Are my purchases now VAT free? Why not?
If it's location of device used to make the purchase, then tunnelling into a virt outside the EU or in a low VAT location within it would also be valid.
You write:
"This is entirely reasonable. VAT is a tax on consumption, paid for by the consumer. Of course it should depend on where the consumer lives, not on where the business is based."
Where the transaction occurs? Does the transaction occur on my PC (in the UK) or at the place of business (in France)? If I drive my car to France and purchase a product I pay French VAT, not UK VAT. If I phone them up and buy a product I pay French VAT. So why should buying anything over the internet be any different?
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"If you really want to fuck something up, put a government in charge."
So in response to the SJWs whining about Amazon & co "not paying any tax" - those cretins in Brussels designed a law that will put the small companies and one man bands out of business, and have absolutely no effect on the Amazons.
Remember IR35?
You still get Guardianistas jeering at how this showed the evil big outsourcing firms what was what. Yes, they often seem believe that it was something to do with taxing big companies.
A law which was basically drawn up by Accenture and PWC to try and drive individual contractors out of the market.
>Remember IR35?
An attempt to block exactly the same sort of tax loopholes that people complain about Amazon/Google/Starbucks using?
Or was it totally reasonable that on Monday you were sitting in the same desk, doing the same job as you were on friday, but now you were working for your Channel Island registered holding company and paying 10% tax on the dividends you were paying yourself and no NI?
Less competition is always good and having a platform to extract rents from all the potential competition (and also snoop on what they are up to and what is "trending") will be a nice business opportunity as well!
Does anyone still get surprised about legislation which does the exact opposite than what "it says on the tin"? This is Exactly what corporations like Amazon pays lobbyists and politicians millions per year for!
"Some services are exempt: hotel booking services, supply of physical goods through electronic ordering processes and and real-time educational services"
Wouldn't the "supply of physical goods through electronic ordering processes" rule out most small businesses and web sites or do they have weird definitions like EDI is OK but web sites not ?
Alternatively I'm having a senior moment :-)
If "micro" business has slept till now, and discover two weeks before there's a law they don't like, well, they deserve it. Looks more like "we pretend nothing is changing... until we cannot any longer, and thereby you'll have to postpone it because we're not ready". Anyway I believe behind the "micro" complaining there are really the big names that don't like to pay any tax they can avoid with tricks - while others pay for them because they cannot avoid them, just because they are not large enough to "exist" wherever they like.
Seventeen years ago I had to get a VAT number and abide to all it required just to work as a self-employed IT consultant. Can't really see why people selling goods should be exempt from that just because "they use the Internet". Also, it is unfair competition against businesses that sell locally and can't avoid VAT.
> If "micro" business has slept till now, and discover two weeks before there's a law they don't like, well, they deserve it.
The "becoming a data processor/holder" is pretty scary stuff for a small business, though. Especially if you sell through somebody like Amazon because they'll be holding all that information electronically and in a cloud which you cannot control.
As a self-employed IT guy I made enough to qualify for VAT registration, but then I could also afford an accountant. That's not at issue. We're not looking to be exempt, entirely, we're looking for the same threshold as any other business to apply to VAT/MOSS registration, preferably an EU-wide threshold which would actually serve a single digital market model.
We're also looking for the guidance on evidence to be collected to actually make sense (as in it being available to collect, for a start), and a legal statement from *some* tax authority that those evidences will be honoured when presented. Currently these things are missing.
Many/most micro-businesses we not around 6 years ago, so there would not have been the recognition of the necessity to comply with this new rule. There has been little-or-no communication from HMRC on the matter, even at times when they could guarantee reaching those who need to know, say around self-assessment time each year. Or when you attach a new service in the Gateway. Plenty of options. Nothing.
The basic concept is widely regarded as a good idea -- by myself included -- the implementation, however, is utter pants.
Regardless of your unfounded belief, it is a real issue, for real micro-businesses/sole-traders.
" If "micro" business has slept till now, and discover two weeks before there's a law they don't like, well, they deserve it."
No one's been asleep the government and the EU are the one's who have been asleep they did no publicity aimed at micro business and they totally underestimated the number of micro busineses that will be affected. Apparently they thought it would affect 40,000 businesses but it seems there are about 250,000.
How would you have known about this if it affected you?
Do you read every word of UK legislation?
"Do you read every word of UK legislation?"
Based on the numbers of new laws and statutory instuments passed by Govt, especially the legal splurge-fest of the last Labour Govt. it's more than a full time job for an individual to keep up with it all. In legal terms, "ignornance is no excuse", but that legal premise is an impossabilty with the enourmous amount of legislation in play.
It was recently brought to my attention by a local news story that using a handheld mobile phone while sat in the drivers seat of a car with the key in the ignition and the ignition on but the engine stopped, is still legally classified as "driving". Who knew? Some did, I'm sure, but I bet most didn't. So, the Police advice to pullover and stop to use a hand held phone is incomplete, mis-leading and possibley illegal since they don't specify that you must legally "park" and remove the keys from the ignition. Conveniently, this may mean that so long as the driver stays in the car with the ignition on, you may be able to wait in no parking areas now since legally you are "driving" and not "parked".
using a handheld mobile phone while sat in the drivers seat of a car with the key in the ignition and the ignition on but the engine stopped, is still legally classified as "driving".
And if you've had a few beers you can be done for drunk driving under those conditions as well. Even if the ignition is off.
Isn't it strange. I have a VAT registered company in the UK, 20% of the sales are to Europe and 10% to RoW. Also have a Spanish company which has significant sales. I have had not a word from the revenue on this, today is the first time I've heard of the new regs. Ignorance of the law is no excuse - but Those That Tax may have made a bit of an effort.
EU laws are introduced into the UK all the time. Often those affected don't know about a new law until they read an article online, see a TV report, read something in the news. The EU had meetings and decided to set this up in 2008 but its only now that this has come to light. The first news on this broke to small business via social media about three weeks ago.Certainly a big percentage of corporate business will have heard in time to restructure. I'm sure corporate lawyers, accountants, specialists in EU taxation will have whole departments watching out for changes and redesigning systems. 6 years to set up what you refer to as 'tricks' .
Over the past three years my accountant wasn't mentioned that this was coming, nothing came out as a publication from HMRC. There has been nothing in the news or social media till 3 weeks ago.
Speaking as a tax advisor, there are two relatively simple ways through this:
1) Make your non-UK sales through a partner that will sort out the VAT for you. I understand that Google are doing this for app sales, and other big (and some smaller) players do too. The problem is of course that you end up paying a slice of your income to the partner
2) Register for VAT, making it clear that your UK turnover is below the threshold, and then file your VAT and MOSS returns. The forms are relatively simple (OK I'm a professional, but they really aren't that hard), and you don't need to do this until you've made your first non-UK EU sale.
For many businesses, the rules won't apply. A couple of non-obvious exceptions:
- If you sell say .pdf knitting patterns, then you're not caught if you manually email them out - only if the download is automatic. For many small hobby businesses this may be happening anyway.
- If you provide on-line training videos, you're caught; if you provide on-line training videos plus live support, you're not. A minor change to what you actually do might get you out of the regime.
On enforcement: I understand that, although the MOSS return is administered by HMRC on behalf of the other EU governments, any enforcement action has to be undertaken by the government concerned. Minor infractions may therefore not be chased up terribly quickly.
If the authorities had any sense they'd agree a mutual procedure whereby say HMRC would look at MOSS returns while checking UK VAT returns, but that isn't in place at the moment.
"1) Make your non-UK sales through a partner that will sort out the VAT for you. I understand that Google are doing this for app sales, and other big (and some smaller) players do too. The problem is of course that you end up paying a slice of your income to the partner"
Many of these micro businesses can't do this as when things are listed on etsy.com etc the seller can't exclude EU But not UK buyers
Option 2 would work but an awfull lot of hassle to collect about £20 VAT a year on my wife's sales.
Nice to see someone responding with something other than problems. You have written what I was trying to dig up, but you look to have more credibility than me.
I do think that the information about this upcoming change wasn't well published. Everyone I've spoken to hadn't heard about it until I told them a few weeks ago.
Someone I know posted a table on Facebook describing some of the scenarios you also pointed out:
https://www.facebook.com/photo.php?fbid=10204529206482886&set=a.1078488435164.13926.1014855530&type=1&theater
So, as was said in the Telegraph yesterday:
"This new VAT procedure was intended to prevent internet giants such as Amazon from avoiding paying VAT by basing themselves in Luxembourg. Instead of this intended effect, the new rule is in fact going to make complying with VAT so difficult* [for small businesses] that the only way to sell e-products will be to sell via large platforms like Amazon or Apple"
(* - or not worth the effort, or whatever)
The Telegraph should grow up and recognise that in business and politics the rule is that:
The Stated Effect is rarely, if ever, the same as The Intended Effect!
- Do they really expect us to believe that hundreds of layers, politicians, media advisor's and whomever involved in drafting legislation are completely incompetent, bordering on useless - yet these very same people are hired for PWC; McKinneys et et cetera?
It is done deliberately, all the time. People who think "the government is useless" are basically suckers who are being set up by the Daily Fail "counter-propaganda".
Filling in the MOSS form might be easy enough, but obtaining the data isn't.
You need to track every VAT rate in the EU over time, and have TWO separate items of PROOF of the customer's "location" (which seems to mean "country of residence" rather than "physical location") for every sale (in case an existing customer has moved house).
If your payment provider can't or doesn't give you the customer's home address, or the home address they give is different to the billing address given by the customer, you're stuck. You are legally required to do the detective work to find out where your customer lives, and then to charge them the correct VAT, and then to pay that VAT to MOSS.
Meanwhile, micro businesses in the USA, India, Canada, Australia, New Zealand, etc. quietly carry on as before: there is no way an EU country can see their sales data, so there's no way they even know that VAT should have been charged. Will each EU country install internet filters with deep packet inspection to spot incoming digital products? Even if the EU country did find out, how are they going to enforce this on non-EU businesses?
Manually emailing or sending the digital product might not necessarily be enough for the new regulations to not apply. Different tax authorities may have different ideas of what constitutes manual intervention.
Another option businesses have been looking at is to provide digital products over the Internet then to follow them up with hard-copies on CD or paper etc.. sent through the post (the digital part being the 'get it now while you wait for the hard-copy') but some tax authorities within the EU might consider the digital part to still be VATable.
Too much of the regulation is open to interpretation.
The regulation needs to be scrapped else wise enforcement delayed while it is rethought and proper definition of what is/is not affected decided. I view EU VAT to be a barrier to trade and as such, I believe it needs to be scrapped.
On the enforcement point - "action has to be undertaken by the government concerned". This means EU governments have full rights to prosecute UK traders under their own laws for undeclared sales. For instance Spain has a standard €75 fine for missing or mis-completed paperwork before they get onto penalties for the missing tax (Spanish bureaucracy detests the self-employed). Not only do you have the paperwork, but you have the full force of foreign legal system against you if you get it wrong.
Starbucks don't sell anything purely digital AFAIK, so this change isn't going to affect either their business or tax avoidance model.
The real issue is with a large number of tiny businesses, which often turn out to be one woman (sorry, a generalisation, but ~90% of the examples that I have seen are) who are selling something small and unique that is delivered digitally, that can be done around childcare.
Examples include digital crossstitch patterns (why should you limit to selling these to only UK customers, when the internet allows you to sell to anywhere?), digital maternity planners (very popular across europe I understand), digital music samples (bought by ad agencies), etc.
A simple fix for this would be to say anyone under the current VAT threshold stays under the VAT threshold, and doesn't have this applied to their company.
"Starbucks don't sell anything purely digital AFAIK, so this change isn't going to affect either their business or tax avoidance model."
Potentially, it might affect their handling of the trademark licensing fees but I'm sure they can get around that by making sure it's done manually or paperwork is physically couriered around.
And it will impact tens of thousands more micro businesses that have digital content as a part of their product line up...
For us, we can't actually work out where a customer is located to the standard expected because we are using third party platforms and those platforms have little or no interest in helping.
The HMRC says you need at least two, preferably three methods of geo-locating the customer. They suggest:
1. Address - OK, but the registered address might not be up to date and might not reflect where the person is actually resident
2. IP Address - Third party platforms won't provide this. Besides, it's not exactly an *accurate* method...
3. Banking country - Whoa there! Besides again, the likes of PayPal will not provide it
4. Mobile telephone number - don't always get this, not everyone provides it
We have done the sums, and based on last year, we would owe the grand sum of £4 total spread across 8 different EU countries. I'm sure it will cost more to collect it.
The one other thing not stated, if you register for VAT and provide a return you are criminally liable for the correctness. Which is why accountants charge a fair whack a quarter to do them.
Of course, since most of our trade is UK and non-EU we could just not sell to the non-UK EU...
If your sales are significant and rely on digital downloads, it may be worth moving offshore. Set up a limited company with nominee directors in a non EU state such as the Canary Islands or somewhere else that's tax friendly and let the EU pick the bones out of that.
The new regulations are unworkable for small businesses, they will have hell and all problems collecting IP data (spoofed?), addresses and proof of residence. Yet another ill considered implementation of an EU regulation. It will stop the big boys fiddling but will destroy the small business, or at least double the end user prices so as to make the hassle worth while.
we could just not sell to the non-UK EU...
Yes, but how do you know who these customers are?
It's the same problem: there is no easy way to know what the customer's country of residence (assuming that's the test) is. A Frenchman could quite easily avoid needing to pay VAT at 20% by giving a UK billing address and using PayPal to pay. I'm not sure who would be breaking the law if you then don't charge him French VAT: him for providing a false address, or you for not having proof of his country?
Perhaps a simple GeoIP lookup would be good enough, keeping the risks low. We really need to know a bit more about how this might all be enforced (how many micro-businesses are there in the world that sell to the EU?) and what fines and punishments for breaking the law might be (would you go to prison for not charging VAT on knitting patterns?).
How do you get the address of the payment card before someone has made a payment?
You need to do this before you make the sale, so you can include the correct VAT (or refuse to sell to them).
So you need to ask a customer for their card number before they've even decided to buy anything. And then ask the payment provider for the address details of this card number, without charging any money to it. That could be a big security problem...
Assuming you can get the address of the payment card, that's only one of two items of proof. If the card country is France, and the billing address given is Germany, you'll need to find some other proof (perhaps IP geolocation) that confirms either France or Germany.
"You ask them, read the guidelines."
Yes you can ask them but:
1. it is a lot of extra work, we are talking of sales of £3 often less platform and PayPal fees, you couldn't afford to employ someone on minimum wage to do it.
2. What happens when they don't reply.
So yes, unworkable!
True - HMRC and 10 Downing street seem to think ip addresses are an infallible method of geolocation but no one has told them up to two million IP addresses are traded across EU boarders every month.
In addition the rules state that where a downloadable purchase is made on board a ferry the VAT is due to the country of departure. Here is the list in full: From https://www.gov.uk/government/publications/vat-supplying-digital-services-to-private-consumers/vat-businesses-supplying-digital-services-to-private-consumers.
Types of supplies covered by the presumption rule include where the digital service is supplied:
through a telephone box, a telephone kiosk, a wi-fi hot spot, an internet café, a restaurant or a hotel lobby, VAT will be due in the member state where those places are actually located - so if a German tourist makes a call from a telephone box in France, VAT will be due in France
on board transport travelling between different countries in the EU - VAT will be due in the member state of departure eg, if a ferry operator provides a wi-fi hotspot on board ship which is available to passengers for a fee, VAT will be due in the member state of departure and won’t depend on a passenger’s place of residence
through a consumer’s telephone landline, VAT is due in the member state where the consumer’s landline is located
through a mobile phone, the consumer location will be the member state country code of the SIM card - if a French resident downloads an app to their smartphone while on holiday in Italy, VAT will be due in France
in the member state for the postal address where the decoder is located or the viewing card is sent - if a UK resident has a satellite television system in their Spanish holiday home, VAT will be due in Spain
If anyone can tell me how a website ePayment system can determine the direction of a ferry I would be delighted to hear. Perhaps Satellite surveillance would help?
Of course, since most of our trade is UK and non-EU we could just not sell to the non-UK EU...
Simple approach is to price in GBP and clearly state UK delivery assumed and charge UK VAT. Those wishing to get a lower price will self select and either provide a VAT number or other geo-information. Remember your first priority is to keep HMRC happy :)
The one other thing not stated, if you register for VAT and provide a return you are criminally liable for the correctness. Which is why accountants charge a fair whack a quarter to do them.
The VAT registered person is liable for the correctness of the submitted return, not the agent ie. accountant... The main reason for the higher charges is reconciliation, particularly when dealing with INTERSTAT.
I didn't hear about this until November when my accountant sent out a letter informing me. It's VERY poorly publicised and will sting a lot of people.
I don't have a problem with it overall, I understand why they thought it was a good idea, but all the literature talks about app stores taking the burden and big companies like Amazon and Google, they seem to have completely ignored small business.
This directly impacts me because I sell direct access to an API to access certain data sets (no app store to save me) so I'd be classed as digital services. This means I now have to register for VAT (I was under threshold) and track my customer payments EU wide and record the data etc. This adds quite a lot of extra costs and burden I now must cater for. As a one man show I don't have to money or staff to deal with this like Amazon or Google.
There's also smallprint people might not notice, such as MOSS will only make payments on your behalf to each countries revenue collector, but if you are LATE for whatever reason you are individually LIABLE in EVERY state you're late in. Fancy paying 28 fines?
I bought an SIM unlock code from a seller on eBay recently and they made it clear in an email that they would mail out the code by post but they were including the code in the email too, by way of backup. They also said that for the purposes of eBay's rules and regulations, this did not constitute a digital sale due to the fact they were posting the code. Needless to say the paper copy never arrived (which was no problem, of course, because I had the email 'backup').
I doubt that loophole would remain open for long though.
>The Single Market means your wife cannot refuse to trade with the EU.
No, individual organisations can, it is governments that cannot put obstacles in the way.
Here's the HMRC guidance on the VAT issue, seems to say it's only digital services:-
http://tinyurl.com/kmxx2ec
Physical knick-knacks or "knacks-du-knick" as they no doubt say in furrin, carry on as before.
Actually, you can - but you have to be very careful about how you do it.
The understanding we have been given is if trading with the EU places an overly weighty burden on the business you can prevent sales. But you may not discriminate.
So if say £50 worth of sales per year is going to cost you hours of additional effort (x minimum wage) and/or accountancy costs they you can justify that it's not worth you trading since you will not make a profit on those sales.
If you are making several £1000 in profit per year then you will have a more difficult argument.
Yes, at least in 2015. I read that it will apply to physical goods too from as early as 2016.
There isn't any real logic in only changing the VAT rules for digital goods. If anything locating the customer is a LOT easier for physical goods because you have a delivery address to use.
Let's start with the obvious. It was assumed that small business and micro business would use an app or a portal to sell their digital goods. Despite PayPal being the most obvious and cost-effective for a lot of small business owners, it was ASSUMED rather than researched that SMEs sold goods online this way.
It was estimated 4,000 businesses would be affected. It's closer to half a million.
The data collection and storing it for 10 years is an unreasonable administrative burden on WAHMs and other small businesses.
The human interactive element assumes that a person can actually deliver something live with their training which discriminates against those with disabilities and living in chronic pain, and finally, the email it out manually now means the EU small business owners lose the competitive edge in their business and are no longer a global business.
For me this has never been about avoiding what I need to pay but about the additional costs of doing business to comply with something that was ASSUMED and then AGREED 6 years that if it had been done properly would never have affected me in the first place. The data holding for 10 years is an incredible burden. In 10 years I may have a new career, but I'd still be paying to store data from the previous one. What happens when I die? Do my children now bear the responsibility for keeping these records for the EU?
AS for communicating the changes, I believe HMRC sent letters to VAT registered businesses again ASSUMING that all small business owners were VAT registered. The FSB and many other small businesses knew nothing until people like Rachel Andrews, Rosie Slosek, Issy Zinaburg and many, many others.
Mainstream news isn't talking about it, the tabloids aren't talking about it, the MPs are cutting and pasting out of date information and the business secretary of state is saying that we've had 6 years to comply with when they didn't bother notifying anyone it affected. It's a diabolical mess and it affects everyone, everywhere. But blame the small businesses, much better to blame them than the people who created the legislation, didn't research it properly and put together a way to take all the profits from a small business into the hands of the very businesses they were closing the loopholes with.
" ...You hadn't exactly gone out of your way to call attention to them had you? I mean like actually telling anyone or anything.' But the plans were on display...' on display? I eventually had to go down to the cellar to find them.' `That's the display department.' `With a torch.' `Ah, well the lights had probably gone.' `So had the stairs.' `But look you found the notice didn't you?' `Yes,' said Arthur, `yes I did. It was on display in the bottom of a locked filing cabinet stuck in a disused lavatory with a sign on the door saying "Beware of The Leopard".'-- Douglas Adams.
I would suggest that anyone who is going to be upset or inconvenienced by these changes sets up a small distribution company in Jersey Channel Isles. Why? They are NOT in the EU....so your sales will be charged out at 5% GST (local tax) and the recipient if any will be liable for the local vat - not the seller.....
I sell a small amount of specialised shareware via my website. Only a few £100's worth every year but the sales are world wide. I'm just not prepared to take on any more bureaucracy; life is too short so f**k it. It is complicated enough as it is dealing with Customs and Revenue & Companies house over this trivial amount of income so I might as well close my one man company and shut my site down and be done with all the hassle.
"And if you have it sent by an automated email you are subject to the ruling, but if you email them manually you aren't. It's basically a maze of idiotically designed passages, all alike."
In that case, you should be able to do it manually and to claim the time spent sending the emails - at the most exorbitant hourly rate that the UK government has ever paid anyone for anything - from your costs of doing business. ;-)
“Small innovative online companies matter to me" bla bla bla says EU clone.
Well he would say that wouldn't he? "I don't give a s**t - I get paid my fat salary and perks to spew out regulations so that's what I'll do" wouldn't get good press.
But he's happy, the enforcers are happy and the big players are all happy to have the little guy excluded from the market - or maybe have then forced to use an Amazon/Google/Paypal product to take care of all the regulatory stuff for them at a price.
I don't think that Atlas Shrugged was meant to be a road-map for the EU - it just seems like that.
Article 50 anyone??
I'm seeing an increasing number of sites which ask you to identify your country when you first register - that seems efficient way to capture without holding personal data. They sometimes offer specificity of language etc as an encouragement.
If you want, you could add a check for country consistency when you ship, still no need to keep the address beyond the shipping process.
The law says you HAVE to check the country of the buyer, and keep TWO separate items of proof for ten years. More than that, if the billing address and the IP address location don't agree, you are responsible for finding out which is correct, and then storing another piece of evidence to support that.
You will probably need to ask someone's country up-front anyway, so you can display your prices with the correct VAT rate included (since in the EU we are required to display prices inclusive of VAT).
Whether storing a customer's address is deemed to be personal data, beyond what is already allowed to be stored for the purposes of doing business, I don't know. If you follow the "Do I need to register as a Data Controller" on the ICO site you'd find you didn't, while HMRC is saying you do. £35 a year and more responsibilities, or not?
With regard to this information being around for 6 years, yes it has - if you know where to look for it. As a non-VAT registered business, why would I spend time reading about VAT changes that I don't expect to cover me? It would be like a car owner keeping up with all the legislation for driving an HGV just in case they started applying an HGV rule to car owners. If HMRC had informed all sole traders and businesses below the threshold that would have told many more of the people that would be affected. Even they admit that they didn't realise so many businesses would be affected.
My understanding is that the VAT threshold is there for a couple of reasons. One is to enable a business to grow without unnecessary admin (and this government is attempting to cut red tape) so that the person or people involved in the business can spend their time on actually making some money rather than collecting and processing information. The other is that below a certain amount it is actually counterproductive to collect the VAT because the cost of collection is higher than the amount paid. That would certainly seem to be the case in many of these situations.
I don't think people should underestimate sole traders and small businesses. Some people may not be looking for a full time income or may not be able to collect a full time income from what they are doing. But it doesn't make it any less important. That incomei is still part of the economy.
Surely if the place of supply was going to change it should have changed for all products and services at the same time. At least then it would be much clearer - someone buys something, VAT goes to their country. There wouldn't be any grey areas. All the web providers, payment processors etc would have had to find a solution and so the sellers could take an informed decision as to the best way forward for their business. As it is, in many cases it is the sellers who are telling their providers that they need to make changes to their services. Paypal is used by many companies. It's not exactly a small company so why had they dones nothing? The same is trye for many others.
So, this isn't whinging about having to pay tax. It's an explanation as to why so many small businesses are confused by conflicting advice, are unsure if they will be able to continue selling through the online marketplaces they currently use and really don't know how they can gather all the information they need to supply as proof of the buyer's counrtry because payment processors have been saying they can't or won't provide it. More information has been spread and more has been done in the last 6 weeks than the rest of the 6 years since this legislation was put forward.
goods (tangible or intangible) are supposed to be able to cross borders within the EU, with no barriers to entering other markets. Requiring VAT registration in other markets is a barrier, requiring it at a lower threshold than in one's home market is a significant barrier.
I have a web hosting plan with a provider that are based in Germany. I don't remember how I ended up with these in particular but that isn't the point. I use them for very basic things like a website (that I never update), email and file hosting for myself and a few friends. Every time I've paid for this it is done so with a 12 month payment up front and I paid this in September or October.
They recently sent me an email detailing the change mentioned in this article about VAT now being charged according to the customer's country meaning it'd be 20% instead of 19%. As I've paid a year in advance are they entitled to try and claim more money from me? I'm assuming not as this change has been coming for a while and they made no mention of it when I renewed the plan and the first I heard of it was the email about the change. I don't know for certain that they intend to try and ask for more money but it wouldn't surprise me.
The new rules will be in place from Jan 1st. Anything where the payment is due before Jan 1st will be under the current system. Anything where the payment is due after Jan 1st, VAT will be charged at the rate of the consumer's country. According to HMRC site, if a VAT invoice is issued you take that as the date of payment so if you've already got the invoice it would count as December's rules. Please note, I'm not an accountant so please do check this info out for yourself,
If the motive behind this is to increase the overall tax take from big international companies they are throwing the baby out with the bath water. Business efficiency is already grossly hampered by tax filing compliance and this simply makes it worse; it can't be beyond the whit of (tax)man to invent a simple, equitable tax that would meet the desired ends without strangling us all in yet more red tape.
Geopolitical borders are increasingly irrelevant in this age of internet driven business, but here we have the EU trying to put that toothpaste back in the tube - another poster has pointed this out rather well in their discussion of the absurdities around the physical location of the download device (Kindle / iPod).
If we want to keep handing Europe's business to Asia and elsewhere this is an excellent measure - well done to one and all
No doubt the normal UK approach to the EU was followed:
1. Politicians and mandarins from the Ministry of Misery campaign long and hard at EU level for new regulations to scratch itch-du-jour.
2. New regulations introduced by EU.
3. Daily Mail declares that said new regulations cause cancer and the politicians and mandarins from the Ministry of Misery berate the EU for forcing legislation down their throats, but they'll just have to implement it anyway because it's more than their job's worth, innit.
Say, did someone mention that HMRC is going to clean up with these new vat rules?
-ss
To allow small (or any) business to 'know the customer', how about some EU sanctionned scheme that allows citizens to have a 'known identity' sanctionned by approved institutions (Banks for example - they have to 'know their customer' already in law I think) that would include the email address and such information (vouched for by the Bank/Government) as is required to conduct business?
All this f*cking nonsense has to stop.
I see some knowledgeable comments above about what small businesses have to do to get around this as something straighforward and normal.
From an outsider, it's crazy. No wonder so many people are scared off starting a small business these days. And it isn't ever going to get any simpler. The tax book just keeps getting thicker.
I'm calling for a large mob with pitch forks to march on the tax wonks and sling them into the street.
Absolutely daft.
My other target for regulations which should be totally ripped up as they impose a massive burden on small businesses is the ridiculous system of Commodity Codes which have to be applied to all goods imported/exported for business purposes ... even when its just a one-off box of almost miscellaneous bits worth £50 which are potential parts of some prototype. The commodity codes are used to look up the level of import duties which apply. If you're a small business developing new industrial/consumer/medical equipment for people, it can easily take an hour or more looking up these wretched codes for every item you send - with the ever-present threat that the items will get delayed in customs (and delay the project) if you've not classified it correctly.
https://www.gov.uk/trade-tariff/sections
But these go into absurd levels of detail for some items, and very general for others.
For example, there's a special classification for
"Coil choke with:
- an inductance of 4,7 μH (± 20 %),
- a DC resistance of not more than 0,1 Ohms,
- an insulation resistance of 100 MOhms or more at 500 V (DC) for use in the manufacture of LCD and LED module power boards"
I kid you not: https://www.gov.uk/trade-tariff/commodities/8504509540
Or
"
Solenoid coil with
- a power consumption of not more than 6 W,
- an insulation resistance of more than 100 M ohms, and
- an insert hole of 11,4 mm or more, but not more than 11,8 mm
"
https://www.gov.uk/trade-tariff/commodities/8504509550
Or
"
Opto-electronic circuit comprising one or more light-emitting diodes (LEDs), whether or not equipped with an integrated driving circuit, and one photodiode with amplifier circuit, whether or not with an integrated logic gate arrays circuit or one or more light-emitting diodes and at least 2 photodiodes with an amplifier circuit, whether or not with an integrated logic gate arrays circuit or other integrated circuits, contained in a housing"
https://www.gov.uk/trade-tariff/commodities/8543709055
It's total insanity!
Where it's not clear how any of this will actually work, much less if it can be effectively collected. You start to get an understanding of how stupid the taxing districts are in the US with 50 states, hundreds of cities and counties, and other miscellaneous taxing entities; nevermind that each and every one has its own rules as to what gets taxed and how much. Yes, it's idiotic (EU and US).
Despite the briefing saying yes. The ICO confirmed to me NO need to register. Very few companies have to register.
Most businesses can answer to the questionnaire:
https://ico.org.uk/for-organisations/register/self-assessment/y/No/No/Yes/Yes/Yes/No/No/Yes/No/Yes/Yes
Andrus Ansip’s says: “Given that this change was adopted six years ago, member states should have helped businesses to prepare". The complacent and patronising Vince Cable has said: "The changes to VAT on digital products is not new or sudden - the change was agreed in 2008 and we've done a lot to communicate it to businesses. Regardless, the majority of UK micro-businesses will not be affected."
https://www.change.org/en-GB/decision-makers/vince-cable-mp
Apparently some bright spark in the Treasury, who's experience of the digital world is probably limited to selling their Ray-Ban's on eBay or buying gentlemen's Tonic Sculpture hair styling product on Amazon, thinks that everyone sells through a portal anyway. So hardly anyone is affected.
I run a VAT company, and also a quite different LTD company that is below the VAT threshold. Neither company has EVER been informed of the new rules. Like most folks, the first we heard of it was via the media. In fact, just as recently as November we had a letter from HM Revenue & Customs "Local Compliance CCG" (I know, sounds like the Stasi). It was titled "Education and support for importers and exporter". Not a single word in the latter about the EU VAT thing and VATMOSS.
This is a fair but unwelcome change. However, selling knick-knacks on line is NOT AFFECTED by the rules (except if you are not a micro business because the revenue of the business already exceeds the VAT threshold).
It affects only companies selling DIGITAL SERVICES on-line. Even then, a digital service that you put on a CD and send to a buyer is not affected. In fact any service you sell that requires some human intervention to complete is not affected.
On-line digital services (selling software, streaming video, on-line training courses) are affected and there is no threshold. But most companies affected have the wit and ability to accommodate the change.
And it was announced in 2005 so its not like there has not been time to get with the programme. Even if this article had some merit, screaming about it two weeks before it is due to come into effect but 9 years late is pointless. So let's see, its pointless and inaccurate.
The group most affected by the change but, perhaps, the one least able to accommodate the change is the massive number of people selling pod casts and subscriptions to drivel blogs. Neither require any technical skill to create so this group is unlikely to be able to adapt easily. So I wonder if this gets closer to an explanation of why the OP has decided to indulge in an orgy of hyperbole now.
I don't understand the title.
Though I do understand that the body text you have written is drivel!
Go back and read about those individuals (not companies) who are affected and how they work and will be affected.
Most of those affected are not selling anything to do with blogs.
The problem is that many many small businesses selling knick-knacks online also sell services and downloads. Once you have the shop, adding downloads is trivial and obvious. A large number of 'crafters' sell patterns online (eg knitting, embroidery, jewelry design, CNC, 3d-printing). Self-help groups and special interest associations sell e-books. Teachers sell workbooks and study guides. Local bands sell their music or fan-club membership. Photographers sell photographs. Artists sell clip art and printable designs. Training companies sell online tutorials and tests. Tour companies sell podcasts, guides and route maps. Even, as one of my web-customers does, some of those almost pure knick-knack shops sell a site membership to give discounts to regular customers, or access to private or restricted content. All are affected because they have to know where their customer is at the time of purchase. And almost all are not companies, are below the VAT threshold and have no experience with VAT or VAT rules in the UK, let alone in 28 countries across Europe.
Unfortunately having got 28 countries to agree so many years ago, I can't see 28 countries agreeing to suspend the rules in a couple of weeks because they didn't realise how prevalent selling content would be online by now.
You see the *force* of the argument Sirius Lee makes here? "Knick-knacks", "selling... to drivel blogs", the implication that critics lack "the wit and ability to accommodate the change".
I wonder what you sell online Sirius Lee? By your standards I may be lacking in wit and ability, but I am a Perl programmer with a product used by folks globally for over a decade. What little *wit* I may have tells me it is no longer worth the candle selling into the EU. My ability will be expended in programming a filter to turn away EU punters. Is that what the EU is supposed to encourage?
When you say "..it was announced in 2005 so its not like there has not been time to get with the programme", perhaps you missed my previous post about how neither of my LTD businesses have received any communication on this whatsoever? I take you are in business selling digitally to the EU? Please detail the official notifications you received of this change.
I brought this to the attention of my publisher yesterday when the story really broke water. Things have gone bananas from then.
Initially, this was going to look like pulling out of EU trade; the overhead would be too much for a small business. [and even if I lost all of my EU audience except for the UK, then I wouldn't have blamed my publisher .. this is well beyond their power to really do anything about]
However, as it turns out, weaknesses elsewhere in the chain means that things like payment processing functions can not actually stop payments for services dependent on country. The SMEs that deal with digital services thus don't realistically have the option of remaining with UK trade only.
Their only two realistic choices are either fold completely, or become VAT registered and go the MOSS route. (plus information commissioner, ten year record keeping and all the rest of it.) ... and their only really effective weapon in ensuring that their records are correct ... is a geographic IP database.
This is NOT going to end well for UK small business.
It is a classic case of the EU doing things from the top down instead of the bottom up. You need to ensure everyone is at least in the same choir before getting them to sing from the same song sheet; and this is a case not only of cart before horse, but of cart before goods, before driver, before feed, before wheels, before passengers ... before horse.
What the pillocks behind this have failed to realise ... is that many of these businesses effectively ARE portals in themselves. Like my publisher is a portal for authors like me. Six years or not, the proper research in to this change should have been done ... and wasn't. There is no way that Europe can slope-shoulder responsibility for their utter stupidity to member states. They have failed to perform a proper analysis on the market that they were about to kill.
Having said that ... I wouldn't be surprised to learn that they were LOBBIED in to this course of action ... but then I'm a cynic...
This is NOT going to end well for UK small business.
Thinking this through, I'm not sure if this will end well for the various Tax Authorities...
Remember the big change is with digital sales to EU Consumers, all other sales (Non-EU and EU Business) are unchanged. For UK businesses selling to EU consumers, under the new scheme HMRC will no longer benefit from this VAT revenue, and will in fact have to go on the offensive (and incur additional costs) to locate, investigate and prosecute foreign businesses. I don't know if current cooperation arrangements between EU nations, permit HMRC say, to investigate the accounts of a German, French etc. business/individual to see if they have incorrectly declared sales subject to UK VAT.
As for HMRC inspecting UK businesses, we can expect them to only permit EU Consumer VAT to be levied if there is sufficient evidence for the transaction to have been to a Non-UK located EU Consumer, otherwise they will demand the business owes them UK VAT on the transaction. Hence why I'm not too bothered about EU Consumers, because if they can't be bothered to identify themselves as being any different to a UK Consumer, they will pay UK VAT and HMRC will be happy.
then it would seem to me that this law could potentially affect non-EU sellers.
And since it's difficult for small businesses to comply, that would effectively raise a trade barrier around the EU for non-EU sellers.
I have contacted my representative and Senators in the US Congress, as well as the President, to investigate this matter and take reciprocal steps if necessary.
This is the equivalent of any time I shop (in person) in any EU country, that shop has to tax me not at the rate of where that shop resides, but where I will eventually return the goods to (at my home residence VAT rate)
- is this where this nonesense is going to end up ?
This has to be against the idea of a VAT being paid in one state (of sale) being 'the' rate. Logically VAT has to be based on where the goods are "supplied from" (not where the money goes/comes from).
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