Digital micro-businesses and start-ups have a difficult enough job as it is. At least they don’t have to worry about VAT. In the UK, we have an exemption limit of £81,000, and after that an accountant can be employed to sort it all out without too much hassle. Right?

For another two weeks only.

After that, the nightmare begins. Here’s the story.

From January 1st, all VAT arrangements change in the EU (including of course the UK), but only for digital businesses. The basic reason is a good one. Companies like Amazon have based their EU operations in Luxembourg, where VAT is very low. The EU doesn’t like that and want them to pay a fair rate. The solution is to change VAT so that it is levied in the country of the purchaser, not the supplier. BUT … they forgot to add an exemption level for small businesses. You have to do it from the first pound or euro.

Let’s take an example of a UK based website that sells eBooks, or perhaps an eLearning website that runs on subscriptions.

From 1st January, each and every individual sale will have to be entered on a government website called VAT MOSS (MOSS = mini one-stop shop). That’s from the very first pound. This is because every EU country has a different VAT rate, and they need to rebate the correct amounts to each country, according to sales. There are all sorts of additional burdens, for example the business will have to keep customer records for 10 years to comply with data protection legislation.

It’s corporate standard accounting rules for tiny one-person operations. People selling knitting patterns for one pound on ETSY are going to give up. Creatives selling fonts for a couple of pounds are going to give up. Cartoonists are going to give up.

But wait.

The nightmare has just started.

Imagine that you are a small business based in the US, or anywhere else in the rest of the world ex-EU. You too will have to register and make a return in your country for every sale you make to Europe. From the very first sale. That means that many of those businesses will choose not to sell in Europe because of the administrative hassle. You won’t be able to buy their products.

Need further advice? Sorry, HMRC hasn’t got a clue and are making it up as they go along. With two weeks left to go. Here are their guidelines.

Notice the date. 10th December. Two days ago. Before that, all telephone enquiries (e.g. by me) were met with incomprehension – they hadn’t even heard about the rule changes! And please note the making up policy on the hoof. Take just this one example, and look at the laughable final column:

 

vatmoss1

Can you imagine how difficult it will be to enforce VAT MOSS? For the whole world?

This is a bureaucratic nightmare that will slow down, if not kill, the growth of digital start-ups in the UK and across Europe.

The solution is very simple, an exemption for small businesses as of now, around the £81,000 mark. That’s all.

Please sign this petition, and lobby as hard as you can over the next week. I have written to MEPs etc and made a noise on social media. Follow the hashtag #VATMOSS to join in.

 

Image credit: LarimdaME via Compfight cc. Text added by ELTjam.

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