Some small and micro companies are worried about what the VAT changes coming on January 1 mean for them. Here are some thoughts.

The change in VAT rules was decided democratically, and after years of discussion, by EU Member States in 2008. That is six years ago. It was decided that it should be enforced in 2015, giving plenty of time for all to adjust.

As I understand it, one of the aims was to establish a level-playing field for smaller companies. No more picking of low VAT countries by larger companies to gain a competitive advantage over SMEs. Of course, the new rules also aim at fairer revenue distribution between Member States.

Now, some small and micro companies are worried about what the VAT changes coming on January 1 mean for them. Given that this change was adopted six years ago, Member States should have helped businesses to prepare. But even if the concerns come late, they should be listened to. Companies should not be left alone.

One practical aid should be the one-stop-shops that have been put in place.

Our taxation colleagues have explained that businesses selling digital services to customers in more than one EU country will be able to declare and pay all their VAT in their own Member State.

Instead of having to deal with up to 28 different tax regimes, they will just have to make a declaration to their own tax authorities - in the language they know, and with the system they know.

The tax authorities will then be responsible for coordinating the redistribution of the VAT revenues to the Member States to which they are due.

I hear also other concrete concerns such as missing country information for customers in payment systems. I trust that this can be addressed with the companies involved.

Small innovative online companies matter to me. I want you to have the necessary space to grow into successful businesses and to trade across borders. But I also see the merits in the upcoming VAT change. Support for e-commerce will be at the heart of our strategy for the #DigitalSingleMarket that is planned next spring.

#Ansipblogs

78 Comments

Gemma's picture

"Member States should have

"Member States should have helped businesses to prepare" - ah, but they haven't. Many small businesses in other EU countries aren't even aware that they will be breaking the law come January 1st.

Clare Josa, EU VAT Action Team's picture

We have hard data to prove how #EUVAT will devastate MicroBiz

Dear Ansip,
Thank you for this update.
We have been running a quantitative research survey and a qualitative case study survey to collect data on how the new #EUVAT rules will hit the smallest businesses.
The results are devastating.
Only 4% believe they will comply in time.
10% are closing their business completely.
50% don't believe they will ever be able to comply.
45% are damaging their business by stopping digital sales or excluding EU customers.
They cannot collect the proof of place of supply data from their current payment processors and have no way of analysing it during the transaction. They simply cannot comply, even though they want to.

They are left with a choice of closing their businesses or breaking the law.

We don't believe that this is what you or the 28 Member States intended.

We genuinely believe that this sector of the smallest businesses and sole traders was not considered in the impact assessments done over the past six years.
We urgently want to present our data to you, so you can consider emergency legislation for a temporary exception to allow each country's smallest businesses a 1 year exemption from these new rules, while a full and proper impact assessment is done and a reasonable, workable solution is found.
People are closing their businesses every day due to the new rules.
We have passports and can be with you in Brussels on Thursday, if you have time in your schedule.
We urgently need to work together on this.
With kind regards,
Clare Josa
On behalf of the EU VAT Action Team
http://www.euvataction.org

David Stark's picture

So I'm one of those micro

So I'm one of those micro-companies. I'm based in Switzerland and sell digital goods worldwide, including in EU member countries. The companies I sell *through* are mostly US-American. I'm not VAT-registered in Switzerland because my turnover is too small. Switzerland is not a EU member country.

So who do I pay VAT to now?

Wayne Neale's picture

wayne.neale@larking-gowen.co.uk

If the collection process for any taxation costs more in money and human endeavour, is it not the case that, overall, society will not benefit? We all understand, and agree, with the desire to make the (mostly US) big sellers pay a fair amount in tax. The MOSS and place of supply changes can achieve this.

But introducing any system of taxation without a threshold is, frankly, just not that sensible, however much it may seem a good idea from a tax ideology perspective. It makes a person making a single sale have the same obligations as Amazon without the consequential benefit in revenue.

When extended to goods, the issues being reported to you increase significantly. A single ebay sale could be interpreted as a business sale by one MS and not by another. Nightmarish compliance for small gains.

If there was an EU wide threshold introduced for very small businesses, say EUR 35,000 (same as distance selling thr3eshold in some MS), the big US sellers would still be caught and would pay their way, but the millions of EU micro businesses would not be impacted until they had more turnover to justify the extra admin. I am not sure what is wrong with this idea.

Can you discuss?

Tim Lewis's picture

You are missing the point

We all understand what the EU was trying to do but they just don't understand how the internet marketplace has changed.

What is refreshing about the internet is how easy it is to sell to anyone in the world through the click of a button. Adding tax has not been an issue, until now.

The systems do not yet exist for a web-site (under the current place of supply rules) to simply identify easily which EU state a customer is in. A company can custom-code a solution that gets to a certain distance of the way, but for a small independent business wanting to sell online this is not feasible.

We understand that politicians make mistakes and I am not saying that these rules should never be introduced, but they need to be suspended until proper consultation can be had with lots of small online business people who only discovered about this via social media this month (what this says about local taxation offices is another matter), and that developers of software that small business people use have time to introduce systems that can cope with the extremely complicated rules the EU stipulates, preferably helped by the EU changing the rules to simply the place of supply rules and to introduce some kind of minimum allowance for cross-EU VAT charges.

The people complaining about this aren't doing this out of ignorance but because they DO understand the implications of it, I am not sure the EU Commission and National Governments do yet. We are trying to help you guys from causing thousands of small one person businesses from closing their online shops in January and national tax authorities being overwhelmed.

Simon's picture

EU VAT

The fact that there are *huge* numbers of businesses like mine (sole traders operating at modest levels) who only found out about this in the last couple of weeks, despite the fact that it was apparently initiated 6 years ago, shows how poorly planned and anticipated it was for all but the largest companies.

Now we know about it, the sheer impracticality of implementing the required changes is becoming ever clearer on a day-by-day basis as we race to try and reach compliance before Jan 1st. Trying to ascertain the information required at the point-of-sale is nigh on impossible for most businesses in my position.

As any web developer would tell you, IP addresses are incredibly bad data to use as a basis of evidence for the customer's location. They are easily (and commonly faked), notoriously unreliable (what if you live close to the border of a country and your IP address is mistaken for a neighbouring country?) and subject to change/update at any point.

And how comfortable would you feel in giving your bank's address when buying a 99p mp3? Or your home address? No matter how honest a business may be, customers don't even want personal information available to 'legitimate' government agencies and institutions, let alone a struggling bedroom musician or author.

And trying to obtain, verify and authorise all this information at the point of transaction on a website is just unworkable when you consider that manual correlation of the 'proof' we *can* get is likely to be needed in most cases. If we are to follow these ridiculous rules, the vast majority of verifying the accuracy (used in its loosest terms) of this information could only be realistically done retroactively after the sale has been processed, at which point it will be too late to say, "Actually I don't have enough evidence to confirm what country my customer is in". So what do we do then? Refund the money after the customer has a non-returnable digital file? Ask them to please pay tax that it looks like they should have paid when the system failed? Report them to Big Brother?

This ruling is unworkable, badly thought out, poorly communicated and impractical and the guidance we're being given is vague, self-contradicting and not even fully known by many of the 'experts' in charge.

In short, it's an unworkable fiasco that should have never made it past the first blue-sky brainstorming committee meeting.

Bob Lang's picture

VAT changes

The aim might have been to create an even playing field, but it isn't doing that. It is making life much easier for large companies while making it uneconomic for small businesses to start up. Further, the monies collected from small companies will be trivial in comparison with the costs national governments will incur with their one stop shops.

This is an unintended consequence, and it's dramatic.

The solution is simple. A turnover threshold below which small businesses can ignore this new system. It will relieve small businesses of a huge burden, but still catch the large companies who can afford the extra admin.

Victoria Bampton's picture

So where are we meant to get advice?

So where are we supposed to get advice on all this? Our small business accountants don't know all of the VAT regulations for 28 different countries. They have enough trouble keeping up with the interpretation of our own laws. And if we register for MOSS, then we're legally required to comply with the various VAT regulations for 28 different countries.

Rebecca Claxton's picture

EU VAT

You might have decided all this 6 years ago, but somehow it hasn't filtered through to most of those with small businesses who are affected until less than 6 weeks before it's due to be implemented! And by the look of last minute changes to services from bigger businesses they didn't know about it all that long ago either.

This is poor communication on all parts of the EC and Governments involved.

Furthermore you seem to have failed to realise (still) the impact on the smallest of businesses, often run by a single person.
MOSS will not make this easier for many - it's still too much extra administrative burden for those working around families/caring responsibilities/disabilities who are trying to contribute financially and set good examples to their children & communities.

This is NOT creating a level playing field. How could it when the companies who were meant to be the target of this have the resources to implement and comply with the legislation yet we solopreneurs just don't?

Not to mention cutting the EU off from buying digital products. Google have already updated their terms of service for Google Helpouts - guess what - the UK/EU can no longer buy these!
There is no doubt that many others will follow, and the EU then becomes digitally isolated from the rest of the world.

You need to wake up to the impact this is actually having on the small self-employed sole-traders who were creating their own jobs & incomes. We appreciate that maybe you just didn't know we existed. But you do now so please act on this before you put hundreds of thousands of sole traders out of business or at risk of not being able to comply.

Yours ever faithfully

Rebecca Claxton
Sole Trader in the UK adversely affected by EUVAT

Karen Butler's picture

#EUVAT

Many micro businesses have only found out about this in the last few weeks: many still don't know. We are the ones bearing the brunt of this. Micro businesses informed the platforms we sell through: not the government tax authorities. Try telling a US based platform that they are responsible for VAT. It's taken weeks with one platform, and even then the arrangements will be individual's choice. Many non-EU sellers will be continuing to trade through Ravelry without any VAT being paid to the EU. This site can process $1 million US sales in a month, 18% of which are EU sales. But VAT compliance will be mainly by EU traders: the US ones in particular believe that they do not have to comply.

I have no protection against the consequences of VAT, or also consequences when the authorities investigate the platform for non-VAT compliance. I risk losing all my pattern sales, as well as my tech editing income.

Other platforms haven't made the position clear yet or have made incorrect statements: Bandcamp said that individuals should register for VAT. The regulations fail to take into account our needs and the limitations of what is possible for sole traders, whether selling on platforms or as we commonly do, via our own website. This legislation expects us to deal with VAT and the associated data collection in the same way as international companies. It just isn't possible. We don't have the resources. Time spent on preparing for VAT compliance, and VAT admin is time we are not generating income. The platforms dealing with VAT compliance will eat up all our profits with their charges. Note that many sole traders are not earning enough to reach their personal tax limit.

This legislation has a disproportionate effect on micro businesses. The cost of compliance to pay less than £10 in VAT to each of 27 different EU countries will wipe away what little profit I have in my growing business.

What #EUVAT does is give the advantage to the multinationals like Amazon. It makes being a micro business an economic liability. Many will simply not be trading come January. Others will be struggling financially. You are taking away the opportunity to become thriving international businesses with one piece of legislation.

Yasmin's picture

EU VAT Rules

I am so sorry to read your blog and feel so disappointed with the lack of knowledge you demonstrate about the digital economy. I think it is safe to say, the communication around this issue has been wholly inadequate. 6 years is a long time in the digital economy and your understanding of it is reflected in the legislation.

This legislation will strangle, suffocate and kill off small and micro businesses. Let this be of no doubt in your mind. If you want big corporates to pay their taxes (which I do too), why was there no exemption for small and micro businesses. You are killing the economy by killing off small businesses. You can still change this.

Sarah Paine's picture

Other thoughts

How about these for thoughts -

Payment providers are NOT supplying the data we need - because Data Protection prohibits them sharing it.

How is someone who sells a 99p digital crochet pattern to someone in Germany (for instance) expected to deal with all the needed website changes in order to even know what rate to apply? Answers from HMRC have generally involved "throw money at a provider who can supply these services, or sell through a third party - which amounts to the same thing". Most nano-traders of this type cannot AFFORD to make the changes you're making a requirement.

And so much for it being in place since 2008.

This is akin to the Vogons in Douglas Adam's Hitchhikers Guide to the Galaxy claiming that the plans for Earths destruction have been available for viewing on Alpha Centauri for 50 years.

If you don't bother TELLING the small businesses who this is now affecting in such extreme ways 10% of them will be out of business by the end of the year, then it's a nonsense.

Legislation introduced in 2008 regarding the internet is of course entirely out of date as the 'net has changed radically since then.

Your expected "proof of residence" includes accepting IP address (which can be faked in a matter of minutes), a bank card check showing residence - by the time the provider has taken the money from the card it's TOO LATE to apply appropriate VAT - unless you're inventing a time travel machine too?

I think your comment about "trusting payment providers to supply the information" is badly misplaced - PayPal (the biggest provider) has already said they are NOT going to do it.

Get to grips with the reality we face in 2015 please!

Kevin Andrews's picture

This isn't solving the micro biz problem

Micro businesses can't afford to conform to 28 members of state's legislations. That's too much to ask!

There are 1000s of micro businesses (one - two person businesses) who won't be able to carry on after this ruling comes into effect.

My business being one of them, I run a small website and server hosting online service. I'm not prepared to open myself up as a director to be liable to 28 different countries worth of rules and fines.

To top this there are NO platforms for website hosts and Server hosts to resell on! You are forcing me to close my business.

My 2-up-2down house won't be able to store 10 years of printed data either. Try explaining all that paperwork to the wife! Only a fool wouldn't keep a hard copy.

To top all of this do you know how flakey IP GeoLocation is? IP's can be spoofed, proxies and anon service can change your location + IP blocks change owners frequently making looking up the block owner's country very unreliable. I'm a software engineer and a server administrator, i know!

IP Lookups will only give you the block OWNER'S location NOT your CUSTOMERS location.

This whole legislation is unfair and discriminating against small / micro businesses plus an absolute nightmare.

Kindly open your eyes and ears and listen to what the population of the EU is asking of you.

Uphold the VAT thresholds of each country OR implement a standard threshold across all members of state.

Kind regards,
Kevin
Ex Director of a micro business come 1/1/15

Sharon Stiles's picture

This needs a rethink

Member States may have known about it for 6 years but, talking with businesses in the UK and several other EU countries, they have not communicated it well to the businesses in those countries. I have had no communication from HMRC in the UK, despite having sent in at tax returns stating my business income during all those 6 years.

Even now, since the businesses themselves have taken it upon themselves to warn other businesses of the impact, there has been little information available in the mainstream media and people still don't know about it.

A similar scheme has been in place for many years for non-EU businesses selling into the EU. Despite that many non-EU businesses are still unaware they should be collecting EU VAT. Some of these businesses are the platforms you are expecting us to sell through. How can we do that if they are not compliant - and have already had several years to become compliant?

I do recognise that the idea behind the change does make sense to some extent. But a one size fits all approach does not create a level playing field. It favours larger companies who have the infrastructure and finance to comply, whilst smaller companies - often a single person working part time, just cannot invest that time and money. To continue trading many people will be pushed towards the larger platforms and so lose a substantial part of their income whilst the larger business earns even more.

The small sums of money that some sole traders mention may seem very insignificant but they can be a vital part of someone's income and their loss means turning off the heating, cutting back on food and even shutting up shop and looking for one of those elusive jobs that so many people are competing for. All the time they could be supporting themselves with their skills and contributing to the economy.

Surely it has to make sense to delay this change, look at the implications again and find a workable solution that enables small businesses to thrive in the way you say you want them to.

Rick Hoppmann's picture

So this should prevent large

So this should prevent large companies to pick lower VAT companies?

When buying resources you obviously will do this as large business from the states with low taxes. This doesn't solve anything.

Another problem is that this makes revenue hard to plan.
With all the different taxes, you can't simply estimate your revenue by guessing the number of units you sell.

I don't see the overly blamed increase in organization effort to be true. It's as simple as adding an option to select the country of the buyer to the checkout. The rest can be automated.

TO SUM UP: large companies still can benefit from the different VAT systems; revenue becomes hard to plan

Karen Platt's picture

Reply to #EUVAT

Is the writer unaware that teeny tiny businesses way below the UK tax threshold let alone the usual UK VAT threshold are caught up in this? Businesses with turnovers of under 10,000 a year who have never tried to find an EU vat haven. No-one informed me or thousands of other businesses that are nowhere near the description of 'micro' by the EU. Most of us work from the kitchen table. How can we grow a business under the regulations imposed upon us? Most of us are having to change our business plan - to send out ebooks manually, to forget trading digitally. We are not corporates,we don;t have an army of accountants. You show a gross misunderstanding of the situation.

Tina Sibley's picture

Small Business Adversely Affected

Considering this was decided upon 6 years ago, it's crazy that the first I heard of it was a few weeks ago - through the power of social media! No Educational TV ads, no posters, no letters from the tax office - NOTHING!

I'm not VAT registered as my business has been too small. I also do my own accounts (even though it is a struggle) as accountants are expensive and I prefer to invest in the technology I need to create a successful online business.

Now that online business that I've invested 4 years of learning and hard graft in is under threat. I was about to go full steam ahead on digital downloads in the New Year, having tested my market place and created great information products. Now, the only way I can sell these is to increase the price beyond an amount that will be as attractive to my potential buyers.

I will have to either include a live element, use a 3rd party platform and pay their fees or adopt unwieldy and expensive accounting procedures.

This makes it impossible to get off the starting blocks - for myself and the hundreds of businesses who are my target market.

As I'm helping other online entrepreneurs by teaching webinar technology and presentations, my market is going to be DRASTICALLY REDUCED. So this threatens not only to put them out of business but me too!

Instead of forcing the large digital companies to act on a level playing field, this ruling will force us tiny nano businesses to use their services or cease trading in terms of digital business.

So - the big boys win again!!!!!!

Joanna Moore's picture

6 years to prepare

This change may have been decided upon six years ago, but I only found out about it a few weeks ago through Twitter. No one has told the smallest businesses about this change. We are finding out weeks before we have to comply. That is not enough time.

Furthermore, this change is not levelling the playing field. The only solution I can see for my micro business is to stop selling my products myself and to instead sell them via a third party platform, such as Amazon. Amazon will now take a cut of my money, so they will benefit from the change and I will lose out. This change is driving tiny businesses like mind to depend on and send more money to the big companies. It is achieving the opposite of what it was designed to change.

Mike Scott's picture

mike@plokta.com

It's grossly inadequate to say "I trust that this can be addressed with the companies involved." You and your department should have done that six years ago, and worked closely with companies like PayPal and Etsy to ensure that they were fully compliant with the new regulations. Having failed to do so, you should now delay the implementation of the new regulations until you have done your job properly, which will take several years.

Henry Hyde's picture

#EUVAT Effect on non-VAT registered businesses

The changes in the law were not communicated to businesses falling below the VAT threshold.

The newlegislation was devised in 2008 — since then, hundreds of thousands of 'kitchen table' businesses have sprung up earning well below the current VAT threshold.

The vast majority of these businesses sell direct from their own blog or website in order for their micro-business to be cost effective.

If they are forced to register for VAT and comply with the other administrative demands imposed by this legislation, these businesses will cease to be viable.

The only alternative for many — such as those producing ebooks — is to be forced to sell via the very giants you claim to want to regulate in the first place, and they will lose 30%+ of their income in fees in the process.

Huge numbers of people use the earnings from their online micro-businesses to supplement poor incomes. Forcing them out of business in this way will increase the welfare burden on member states.

This legislation will cause enormous collateral damage. Whilst we understand your aims, which made more sense in 2008, the effects will be devastating. I, for one, will have to cease trading online and I know there are many, many more like me. At the very least, the threshold before VAT registration is required should be retained.

Making such a gesture would cost virtually nothing, but save financial misery for hundreds of thousands of EU citizens.

Julia Sydnor's picture

#EUVAT

With jobs scarce and money tight across the EU, more people than ever before are selling e-services to generate some kind of income and stay off benefits.

I am one of those people. After being made redundant, I turned what was once a hobby into a tiny digital business. It is my sole source of income.

Like most freelancers, I get paid by the hour, which means I automatically have a cap on my earnings. Freelancers don’t get sick pay, holiday pay or other in-work benefits. Because of that, we often sell e-services to supplement our income.

I earn below the vast majority all EU Member State VAT registration thresholds. The administrative and financial burden of the new EU VAT rules far outweigh the income I generate from them, which means I’ll be forced to stop selling them. I will lose approximately 45% of my income.

It's clear that EU legislators did not do thorough research when drafting this directive. Furthermore, whatever data they did have has changed immensely given the rapidly changing environment of the digital landscape.

Contrary to statements made be the EU, most sole traders and freelancers do NOT sell e-services through marketplaces. They sell through their own websites to avoid losing 30-65% in commissions and fees. Additionally, there are many e-services for which no 3rd party marketplace exists.

The legislation itself is problematic to the point of being unworkable. The administrative requirements are so complex that even Google has begun removing e-services from the EU. If technology giants like Google are not capable of collecting the required place of supply evidence, how can sole traders with nowhere near Google’s resources possibly comply?

As if all of that isn’t bad enough, it will cost EU Member State governments more to process tiny VAT returns than the revenue generated from them. A civil servant's salary will be far greater than the €0.04 VAT generated from the sale of one printable crochet pattern. Given the current economic climate in the EU, this is hardly the time to add unnecessary bureaucratic expenses.

The EU drastically altered the requirements of the EU Cookie Law after seeing the original rules no longer applied to the current internet landscape. The EU must now suspend or amend the implementation of the VAT Place of Supply legislation for micro-businesses. At the very least, a VAT threshold needs to be upheld to prevent these businesses from losing 30-65% of their revenue or going under completely.

Anonymous's picture

UK HMRC didn't tell non VAT

UK HMRC didn't tell non VAT rated businesses, you are going to kill of micro / nano one person businesses with unworkable legislation for us. Payment providers will not give us the information required and I do not intend paying £35 to register as a data holder when my EU sales will be less. Bad Bad Bad no consideration to micro business

Roger's picture

EU citizens penalized

Sorry, but shouldn't the EU first priority be to level VAT equally in all member states? I understand the "protection" from abuse by large corporations which this law tries to accomplish, but with so many different VAT levels in all of the 28 member states it becomes too complicated. Probably you don't understand the implications this has at programming level of all the shopping cart software. The law, as it is now, is doomed to become a huge failure since small companies with good and interesting digital products will abandon the EU online market because it becomes to complicated to manage and comply with the rules, thus limiting the EU citizens in their choice of digital products.

Lucy Parsons's picture

Actions not thoughts are necessary now

I would like to address each of the points you make in your post in turn.

1. We've had six years to prepare. That maybe so. But, many, many, many of us did not find out until a few weeks ago. Many accountants didn't find out until a few weeks ago. It seems that neither the EU nor the UK government knew that kitchen table businesses selling small numbers of digital products even existed. I sell one £2.50 digital product through Etsy and Craftsy. They didn't seem to know about the legislation and don't seem to be doing anything to help. Is registering for MOSS and filing quarterly returns really the best use of my time, rather than working on expanding my business? Also, the internet has changed a great deal since 2008. When you think how far it's come in that time, doesn't it stand to reason that the law needs to keep up with the internet, rather than the internet being dragged backwards by the law?

2. Using MOSS to help. When your business makes c. £1000 per year in total and you only have one digital download (but would like more, if EU legislation wasn't getting in the way of all plans for innovation) in seems ridiculous to go through all this bureaucracy, particularly when you're unlikely to make sales to people speaking other European languages.

3. Missing company information. And I quote "I trust that this can be addressed with the companies involved." You clearly have not looked into the intricacies of putting into place this legislation. Firstly, many marketplaces, such as Etsy and Craftsy, are American and do not seem to collect the necessary information and aren't making moves to comply. Many nano businesses run their own websites using platforms such as Wordpress and have no coding knowlegdge so can't put this into place. On top of this are the data protection issues of storing customers' data for ten years. I don't want multiple internet businesses the world over being entrusted with my data and I don't feel comfortable with storing other people's data. It will also put people off buying because of the amount of data they have to input to purchase.

This legislation is in essence regressive. It's as if the EU wants us to go back to 1999 or the analogue age, rather than move with the internet, allow people to be entrepreneurial and create wealth for this continent. The internet will win in the end, it is a force of information and people power. The EU has to move, and the sooner the better. Stop thinking, Mr Ansip. Take action. Today.

Simon Ashmore's picture

VATMOSS

" ...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.

Ian Shepherd's picture

Missing the point

Sir, you say:

"they will just have to make a declaration to their own tax authorities - in the language they know, and with the system they know"

But those of us who aren't yet VAT registered don't know the system, and have no idea how to implement the documentation requirements. It isn't even technically possible for many people.

And because the UK government only warned people who were already VAT-registered about this, we now have only a couple of weeks to try and catch up.

If small innovative online companies really matter to you, prove it by fixing this mess.

Yan's picture

#euvat

But you missed the point! we have no problem with the MOSS system, that is a great idea.

What we are unable to do is implement the infrastructure to charge VAT at the correct rate due to all the details needed. Most small digital businesses are independent and have enjoyed not having to pay out fees to platforms.

Installing such a system would cost 1,000's out of reach of small content creators and hobbyists. Not to mention that we only found out by chance 1 month ago!

Thanks,
Yan

Amanda C's picture

time to adjust

I have huge concerns regarding WHO was told about this change six years ago. All of the advice specific to my one woman crochet pattern design (nearly) business is that the on-line selling platforms will take responsibility for VAT. The platforms I trade through, however, have less of a clue about the new rules and how to implement them than I do. I have yet to hear about ANYONE who knew about theses rules earlier than last month.

Megan Kerr's picture

Missing information in payment systems

Thank you for listening to our concerns and taking them seriously. I have 2 issues I'd like to raise:

* Payment providers: The largest, PayPal, has explicitly said it will only provide the country code. Like 60% of digital microbusinesses, I sell directly from my site. "Trusting" that they will resolve this doesn't help me keep selling after 1 Jan. I still have to withdraw sales.

* The admin burden on sole traders & microbusinesses: It's increasingly clear that we weren't considered in any impact assessments and many decison-makers remain ignorant of the nature of our businesses, lives, and reasons for self-employment. What might be reasonable and doable for a microbusiness of 20 people and a £1 million turnover is unfeasible for a sole trader - especially when many of us are carers for young / elderly, have physical health issues, or mental health issues. Digital online sales have been a vital source of employment for people like me who are otherwise unable to work.

These changes were agreed in 2008, when the internet was a completely different place and before many of these businesses started. Given how dramatically the situation has changed, and that no-one realised what a vast number of vulnerable sole traders would be severely impacted, I beg you to do everything in your power for the EU's digital sole traders and smallest microbusinesses. A simple company-earnings threshold would allow us to stay open and have the possibility to grow.

To see first-hand the human impact, I would urge you to look at this Facebook thread, https://www.facebook.com/groups/DigitalVAT2015/1511723505771627/, where, as I say, most of us are not "businesses" as traditionally perceived - we're people, finding ways to survive, to contribute, to create, often in the face of very difficult personal circumstances, and the issues expressed there are massively significant obstacles to compliance.

Best wishes,
Megan Kerr
The Writers' Greenhouse

Anonymous.'s picture

You've got to be kidding.

Your statement rings hollow for the rest of the world. We are a US based seller, we know nothing of your ridiculous tax structure and onerous regulations (ten year data retention, with multiple personally-identifiable location identifiers? Are you serious?)

This ill-conceived land grab will either put us out of business, or else we simply will no longer sell into your market.

Good job.

Emily's picture

I am a small kitchen table

I am a small kitchen table top run micro business. I had no idea about these changes until November when i found out about them through Facebook. While I sell through etsy, etsy cannot confirm if they we'll collect the information required to meet these legislative changes. I will therefore be forced to close before I've hardly even started up

alan's picture

you have got to be kidding me

this post is so utterly out of touch and so totally fails to address the real concerns that it doesn't really merit a reply.

I suggest that Mr Ansip do some reading, and then try again:

https://www.change.org/p/pierre-moscovici-a-unilateral-suspension-of-the...

http://ysolda.com/blog/2014/11/26/they-didnt-know-the-impact-of-vatmoss-...

http://wordsthatchangetheworld.com/2014/eudigitalvat/

would be good places to start.

Martin Wilson's picture

Protect SMEs by killing them?

These rules will force small business to only sell through eBay, Amazon and other such platforms so rewarding the culprits who made this legislation "necessary". There is no way mosty SME will have the technical, adminsitrative or tax knowledge to comply.

The way I can respond is to close my business and go onto benefits. I am at the time of life where I do not need the hassle of having to track 28 sets of tax rates, intepretations and have the worry that any one of them could audit me at any time.

My micro business was to provide me with a modest, residual and low involvement income from photography archive so I could live independently of state benfits in retirement. Thanks to you have just made it impossibel - you simply don't understand the world of micro and small business, Internet and the global market which was allowing even the smallest business to compete with the large. You have have taken small business back 20 years.

It was not properly communicated and the implications for tiny business. at least in the UK, is not understood.

Fiona Anderson's picture

change in VAT rules for micro companies

While my company currently provides services to clients, we were intending to also publish and sell ebooks, due to demand.

With the change in VAT rules, we do not have either the manpower or the expertise required to track down every possible customer's country of origin, or any other information about them.

This means we are unlikely to venture into publishing at all. Thus your VAT income from us will remain at its current level, with NO additional income to you or us.

Your VAT change has killed our publishing venture. Was this your intention?

Tim Wright's picture

Here are some further thoughts

Small and micro businesses are permitted VAT exemptions for good reasons not least to give them space to grow and not be overburdened with red tape and bureaucratic compliance when their margins and resources are small. Once they cross the threshold into being required to register for VAT they should have sufficient capacity to comply, albeit actually technically very challenging to do so - and you as digital commissioner should know this.

The idea that this regulation gives a micro business a level "playing field" with companies like Amazon that abuse low VAT countries is faintly ridiculous

Your comments about the "democratic" provenance of the legislation is of no relevance whatsoever. Leaving aside the democratic deficit many feel is inherent in a lot of EU decisions it is still entirely possible to democratically pass very bad laws.

Kerrie Slade's picture

#EUVAT response

The information about the new regulations has not been communicated to micro/nano-businesses at all and the first I read about it was a couple of weeks ago via Facebook so we have certainly not had 6 years, nor even 6 weeks to prepare! I spoke to an accountant about this last week and it was the first he had heard of it too and when I told him he laughed at me because he thought I was making it up! There are literally thousands of sole traders like me who run tiny businesses single handedly, we all complete our tax returns and we all declare that we sell digital downloads and yet nobody thought to tell us about the changes.

I am a beadwork artist and I sell digital downloads of my patterns all over the world via a basic website that I set up using a template because I do not have the technical knowledge to write my own code. I simply do not know how to obtain the evidence required and I don’t think my website even has the capacity to add the software that will be needed to capture the required evidence for the one-stop-shop and I am certainly not set up to cope with the data protection issues of storing data for 10 years. But the technology of digital downloads has enabled me to start a small business from scratch and share my ideas with the world – having to send out printed copies to avoid being liable for VAT would be like going back to the dark ages.

I am perfectly willing to pay my taxes but nobody seems able to give me clear advice on how I am supposed to be able to jump through the new hoops. I thought the 'burden on business' was supposedly being reduced - suddenly having to capture evidence and complete quarterly reports on top of everything we already do to comply goes completely against that. I need to spend my time creating innovative designs and writing detailed patterns, not trawling through Twitter and Facebook to try and find out what this new rule means to my business and what red tape is involved. If I shut down my website and go to Amazon I will lose a large chunk of my tiny income and it will only make the giant companies even more money. None of the other platforms are prepared for this and they are telling us that there is nothing they can do to capture and report the information on our behalf, even PayPal (who many small businesses use to process payments) are telling us that they cannot provide us with the information required by MOSS.

Please Mr. Ansip, take note of what we are all saying and reconsider.

Thank you

Tim Clarke's picture

Left alone?

Destroyed more like. The regulatory burden for micro businesses is untenable. Practically their options are to shut down or cease trading into europe come 1st Jan.

I'm not sure where the 'blame' lies, either for the original negotiation, or the lack of consultation or communication, but the level of sheer incompetence, warrants the people involved to step down. I don't make that statement lightly. Negligence and Incompetence are the two key words ringing in my head.

The issue is as a small trader, who operates in a country under the VAT threshold, so they are bringing (UK £80k, EU states a lot less) so can not reasonably be expected to afford professional services. Set up a VAT company, submit VAT forms quarterly (accounting knowledge), acquire 2 pieces of information verifying location, from a list that is a canard, there are only two pieces which are practically available - and IP address is frequently wrong) - ICT skill required. Store online for 10 years (for christ sake. 10 years? Don't try to sell in your twilight years - you'll never be able to retire), and that means you register on data protection as you're storing PII data (technical, security & compliance knowledge required).

All this to sell one 50c knitting pattern to bulgaria, and if you screw up your liable to 28 different jurisdictions. How absolutely, and apologies for the language (call it Anglo Saxon), fucking stupid can you get, because a bunch of VAT heads sat in the room, and did not consult with people who had a clue.

Danvers Baillieu's picture

6 years?

It is outrageous to claim that businesses have had 6 years to prepare for the change in the law - the detailed guidance has only been published fairly recently and it is this guidance which is causing most of the problems - such as the requirements to collect 2 pieces of non-contradictory evidence.

It would be quite simple to change the guidance to allow companies to devise their own systems and processes for determining the location of customers and, if fair and reasonable, allow them to file VAT returns on that basis. The guidance is simply too restrictive and impractical.

The irony is that businesses in the EU selling to customers OUTSIDE of the EU do not need to collect and store so much evidence to "prove" a customer is outside the EU and that no VAT whatsoever is due. In other words, a business has a lower threshold of proof to show no VAT is due on a sale than it does to prove it has ascribed the correct country - where the difference in the VAT rate may be nil.

Andy Holmes 's picture

Your failure to display comments

Stop making yourself look ignorant and display the comments that people have taken the time to write. Otherwise I can only assume the fact that haven't is an admission that you are wrong. It is exactly this type of aloof behaviour that is turning people in the UK away from the EU. Man up!

Caroline Gebbie's picture

Unfair Vat Regime

Of course you see a merit in it you have bankrupted the EU so now you are looking for more peasants to tax. Taking VAT from businesses below the VAT threshold is tantamount to robbery and you should be ashamed of yourselves.

I have just been given a 20% pay cut at least in the UK we have a Robin Hood standing against the tyranny. Go UKIP go Nigel we will show them exactly what they deserve.

Of course the other problem is unlike large business I can not offset any of my purchases against my VAT. This is one sided legislation designed to do nothing more than line your pockets.

Coincidental Music's picture

#EUVAT blog post

OK:

"...decided democratically...plenty of time for all to adjust."

Democracy failed on this occasion. My government couldn't make my case because they didn't know I existed. And they failed to publicise the new law for the same reason. What can we do about this now?

"As I understand it, one of the aims was to establish a level-playing field for smaller companies."

Then you should also understand that the rules do the precise opposite. Why? Because the costs of compliance do not increase linearly with company size. The smaller the company, the greater the percentage of profits taken up with the basic fixed cost of compliance (in terms of time, money, spirit, etc). For the very smallest companies, it is no longer worth continuing to trade. I cannot believe this is too complicated to grasp.

"But even if the concerns come late, they should be listened to."

I don't want counselling or sympathy, I want you to do something.

"One practical aid should be the one-stop-shops that have been put in place..."

The debate's moved from this. Please catch up. Yes, it would be worse without MOSS, well done. But it's not really a solution, is it? Curing my headache with a paracetamol doesn't count as a success if I'm still suffering from acute appendicitis.

"I hear also other concrete concerns...I trust that this can be addressed with the companies involved."

We need a little more than "trusting" now. Who will be "addressing" this? You personally? Us perhaps? Have you talked to your data protection guys about the prospect of more personal data washing round the internet?

It's a knotty problem, but this is precisely the sort of thing that legislators should have been wrestling with in 2008. Things have moved on a great deal since then, making the problems even more intransigent, but even in 2008 someone with a passing acquaintance with e-commerce could have foreseen these difficulties.

The legislation was a botched job and now you have to deal with the consequences. I don't envy you that, but surely this is a chance to make your name by taking bold, positive action, not just presiding limply over a decline?

"Small innovative online companies matter to me."

I'll need to see some action before I believe that.

"I want you to have the necessary space to grow"

We'll settle for being able to carry on trading!

"Support for e-commerce will be at the heart of our strategy..."

I shudder to think what this might entail. Good luck.

Ashley Rogers's picture

A war on small business

So how much are you being paid by large corporations to make it impossible for small business to establish and grow. The compliance will cripple small business, even the UK tax department is advising small business to close down. You are either exceptionally stupid or you are rotten to the core.

Louise Birkett's picture

I really don't know where to begin

There is so much wrong with this blog it's difficult to know where to begin.

Like many nano businesses my digital downloads are a second income source, something I can upload to the internet and sell while I am doing my main job or while I am asleep. The internet has moved on since these rules were created and now consumers expect to download things instantly.

Like most nano businesses I understand what the EU was trying to do. I also understand that the MOSS idea was meant to solve the problems small businesses would face. But here's the thing...the definition of small business is too big for most of us. We're the start-ups, the creatives, the people who, instead of relying on state handouts when things went wrong during the downturn, picked ourselves up and looked for a solution that would allow us to keep the roof over our heads. We're the people that people like you clearly despise.

If the EU were truly democratic its citizens would have the right to challenge EU law where it has a disproportionate effect. Although EU citizenship has been in place since the Treaty of Maastricht, we do not have this right. In addition, our directly elected representatives seem completely powerless to act. This is not democracy - this apparently arbitrary approach skirts dangerously close to tyranny.

The effect of this legislation is disproportionate for nano businesses - at the very least there should be a threshold in place before the change applies to them. At the moment if I sell a single £1.75 design to someone in another EU member state I have to have the same processes in place as someone who is selling thousands of pounds worth of digital downloads and can afford accountants, software and all the other paraphernalia that appears to be required (and isn't necessarily in existence yet).

This does not provide 'a level playing field'; it provides a death sentence for thousands of nano and micro businesses.

All that is required is the common sense approach of establishing a threshold under which these new regulations do not apply. The existing distance selling threshold has, presumably, been agreed by Member States in the past and could be applied EU-wide relatively simply.

Tim Gray's picture

Excellent post. Just so.

Excellent post. Just so.

The system needs to be much clearer about what is and is not covered. There needs to be realistic expectation of data gathering. And it all needs to be communicated properly to the people who will be affected.

Sarah Arrow's picture

Discriminating against women, the disabled and small biz owners

We all know the legislation was intended to make things fairer, and no one is saying they won't comply. What we're saying is the legislation in it's current form makes it impossible for us to comply.

WE cannot be liable for something when we're relying on 3rd party data of companies that are not willing to comply.

Take action - have an EU wide threshold for digital businesses. Stop closing down businesses belonging to women, to the disabled and chronically ill. Support the micro businesses instead of making statements like "you've had 6 years to prepare". A year ago I didn't have a business. 2015 I should be ready to be VAT registered in the UK. Now I closing up shop as the administrative burden is too much. What little profit I have will be paying for 10 years of data storage.

It's unworkable in it's current form, and unfair on all the small and micro business owners in the EU. Quite simply you've killed my business and say it's to make the EU marketplace fairer. That's what I'll tell my kids my legacy is.

Amy Letts 's picture

"6 years to prepare"

If more people knew about this you would be hearing even more outrage, but many still do not know it affects them. They think they are too small. *You* think they are too small, or you would have taken the time to inform and consult them. But the law doesn't have a threshold meaning they are affected, even if their earnings are below £81k, heck, even if their earnings are below £10!

How will this be enforced? If it is largely unenforced does this not leave it wide open to abuse?

The 3rd Parties small businesses are being advised to turn to are being bombarded with emails asking if they will comply and it seems as if they did not know either before their inboxes began filling up. If they are not prepared how can small business and sole traders be expected to be? Everything is being rushed out including MOSS. The guidelines have only been issued recently and these are incomplete and vague. 3rd parties are rushing to comply - or withdraw service from the EU.

This is simply terrifying from small digital businesses or those who rely on international digital services. The beauty of digital was that location didn't matter and you could get your product instantly. I have no idea whether most of the services I use are located. If they comply the tiniest sole traders will a expected to collect personal information.

It is unwise to expect them to do this because the time, money and infrastructure required is something small businesses simply do not have, furthurmore it puts personal information at greater risk (you will suddenly see a rise in phishing websites, fraud and identity theft). To avoid compliance and the burden that goes with it they must send out their digital products by hand, making the customers wait, giving advantage to bigger businesses that can provide an instant service.

We are still waiting to find out whether 3rd parties will comply. Assuming they do remember the innovators will be beholden to them and their rules, limiting their creative freedom. When they do succeed they will get a fraction of the sale after costs covered and VAT and commission is taken. Digital start-ups will be forever under the heel of big business.

Please address these concerns. A threshold would prevent these problems so easily. Small business owners and sole traders, whose businesses are not just their living but their passion, feel these new regulations are throttling the life out of them and it is just not worth it any more.

Getting Angry's picture

Luxembourg should change, not entrepenours

It's painful to see the current President of the EU is responsible for the need of VAT MOSS. It terrible to see people actually considering using Amazon to distribute their products in order to comply.

Charlie's picture

Andrus' ignorance

Andrus, your blog post demonstrates how completely out of touch you and your colleagues at the EU Commission are when it comes to the digital landscape. Let me address your points one by one.

1) The change may have been decided 6 years ago, but I wasn’t made aware of it then (I would have only been 21 only just out of university and not selling digital goods at the time) and I haven’t been made aware of it in any of the years since. I found it out about it last month from a friend on Twitter. Giving me a whole 6 weeks to prepare.
2) Yes, the new rules are designed to level the playing field by cancelling out the advantage Amazon et al can get by basing themselves in Luxembourg for tax purposes. The issue is that at the same time as bringing the big players down a notch you are doing to kill off the smaller players, who simply cannot cope with the corporate levels of compliance and reporting you are demanding of them. If your target was the mega corps, which supposedly it was, why on earth did you not introduce a de minimis threshold? I sell an ebook to Italy, and now I have to collect two pieces of non-contradictory info regarding the customer’s location (almost impossible, will come back to this), register for VAT in the UK, register for VAT MOSS as well, find out the VAT rate in Italy, file quarterly VAT returns to HMRC as well as quarterly MOSS returns. Pay the VAT. Charge the customer the extra VAT due (whatever that is). All automatically. Oh and I have to store this Italian’s data for 10 years in case the Italian tax authorities with to investigate me at any point. It’s just ridiculous.
3) Member States have not helped businesses prepare. As I said, I only found out about this law last month, and it wasn’t from the HMRC. It was from a friend on Twitter. We need more time.
4) Yes, the one-stop-shop system is simpler than registering in every single country in which you owe tax, but it is NOT simple. It still means making massive changes to one’s ecommerce systems, collecting all the necessary data, resolving any conflicts, calculating all the different rates of VAT, hiring an accounting and a bookkeeper to help you keep track of everything (expensive), etc etc. The list of impracticalities is just endless.
5) The missing country information is a huge issue that you simply ‘trust’ can be resolved with the relevant companies? Well that doesn’t help. Because guess what? The companies have not resolved it and there are only 2 weeks to go.

Alan Rae's picture

#EUVAT and the EU's reputation - a suggestion

Dear Andrus

I am not going to add to the evidence and reasons that my colleagues have put forward on this blog. They are unanswerable and I feel sorry for you having inherited this mess.

The EU has a dreadful reputation amongst many people as a result of the kind of ill thought consequences of your legislative programme generally and on small businesses in particular. This presents a very real danger that the UK may vote to leave the EU in a referendum - something that would be in no-one's interest.

You have the opportunity to make a new start. You could quite simply decide to defer implementation of these rules on all EU definition SMEs until such time as the proper arrangements with the intermediaries such as Paypal, Etsy and the rest are in place for these platforms to collect VAT on behalf of the large numbers of small traders.

This will leave the prime object of the legislation - catching the likes of Amazon who choose to operate in the lowest VAT regimes - intact while not adversely impacting the vision you have for the future. If your team work actively on this it shouldn't take more than 18 months and will pave the way for your plan to extend it to all goods in the foreseeable future.

You would do well to also put in a permanent exemption for nanobusinesses operating at something under the UK VAT threshold.

You want jobs? Part of the reason we're creating them in the UK and you are not in mainland Europe is because we are more pragmatic about easing the burdens on the smallest operators.

You have an opportunity to make a real difference. Do us all a favour and take it.

Kind regards

Alan Rae

SD's picture

EU bureaucrats need to try running businesses

This seems like a law drawn up by the Spanish Hacienda. No minimum threshold for compliance. A mound of paperwork. No communication to anyone who will be affected. A belief that every transaction comes with an ID number/address. A belief that all businesses have accountants/gestors. A disproportionate cost on smaller businesses. A failure to understand the importance of kitchen sink or garage businesses (like those that started HP, Apple, Microsoft or Google). Potentially draconian fines. No time for implementation. And then the affrontery to say there are no problems. (Not surprisingly a lot of stuff in Spain is done cash-in-hand to avoid the tax office)

Can you imagine what the press will do when France (or whoever) instigates the first legal proceedings against a British (or whereever) smaller trader for non-compliance on a handful of Euros?

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