The issue of the week for SMEs is surely the impending introduction of VAT MOSS. Not heard of it? It’s really only made it onto the agenda in the past week or so but might impact your business.
VAT MOSS is a new tax law that comes into power on 1st January 2015 that requires all businesses selling digital products to consumers in Europe to register for VAT. So if you’re selling anything from musical downloads, ebooks through to Apps and software, you’ll have a great deal more paperwork to tend to.
Let’s be very clear: A UK business selling ‘digital’ services will need to be aware of important VAT changes that are taking effect on 1 January 2015 if it sells these services to non-business customers who are based in the EU. UK VAT will no longer be charged on these sales – the key issue will be where the customer is based rather than the supplier.
Enterprise Nation has boiled down the problems that VAT MOSS will present:
“Cost of compliance
Thousands more businesses will need to hire accountants to file quarterly VAT returns and there would be extra paperwork required with UK businesses having to determine and prove if they are selling to individuals or businesses in the EU, with the determining factor being if the other party can provide a VAT number.
Role of Marketplaces
The move is pushing more small businesses to trade via marketplaces as opposed to selling digital products via their own site, which is ironic when the move is intended to clamp down on the tax practices of the major marketplaces.
On this point, we also spoke to Patricia van der Akker of The Design Trust who has been keeping a close and alarming eye on developments:. She says:
‘HMRC says that the online platform or marketplace is responsible for charging the VAT, but the providers aren’t doing anything, and many of these marketplaces are outside of the EU anyway. Many UK businesses charge their products in US$ as the American market is so big, and go through an American market place or portal – would they still need to comply? There is a lot of confusion in this area.’
Data collection and retention
There’s also a problem with the data requirements of the rule, it possibly works against data protection practices with specific requirements of data needing to be collected and stored or 10 years.”
So what can be done?
Issy Zinaburg has started the petition here and you can read her story on Enterprise Nation.
Her petition seeks a delay and review. I have no hesitation in suggesting you sign it because these new rules are a real burden for SMEs impacted. A delay and rethink is vital and HMRC has indicated that might be an option. More than 5000 people have signed the petition already.
There is a good deal of detailed bloggery out there on the subject. Here are some choice cuts:
How #VATMOSS is the end of small enterprise in Britain – and how we can change it
This EU legislation looks like it will have global impacts.
I’m from Australia and whilst knowing nothing about international taxation, it looks to me like every small and micro business located in every country of the world outside of the EU will also be impacted.
Here in Australia we already have GST to manage and submit to the Australian Government. If you are selling a digital product online (and not via a third party website, which a lot of microbusinesses don’t choose to do), then suddenly we (globally) cop an additional burden of administering VAT for the EU as well? You’ve got to be kidding me!
Most micro businesses run on the smell of an oily rag. We barely have the resources to manage the taxation requirements of our country, let alone EU requirements as well. Some small businesses here will have to consider closing their online stores, or being forced to use third parties to sell their products (what happened to the notion of a free marketplace?) or selling to the rest of the world but somehow figuring out how to not sell to any customers in the EU.
This is crazy. I understand clamping down on the big B2C companies like Amazon as they’ve had loopholes to minimise their tax until now, but the impacts go way further than that and stand to cripple small and micro business worldwide.
I have been in touch with an online shopping cart provider who tell me they don’t know how to implement this procedure because they have no access to customer details such as location of purchase and residency until it is supplied after the sale by the billing company such as PayPal, therefore making it impossible to calculate the price before the sale. I think it’s safe to say the EU hasn’t thought this one through… There is no way for small businesses to fully comply with this legislation and they will be forced to deal through global monopolies like Amazon.
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