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Number of businesses EU VAT rules affect 'underestimated'

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21st Apr 2015
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HMRC’s underestimate of the number of small businesses affected by the new VAT EU rules on the supply of digital services caused thousands to struggle with the new regulations. 

The claims were made by the EU VAT Taxation report, recently published by small business network Enterprise Nation.

A year before the rules were due to come into play, an HMRC investigation found 5,000 non-VAT-paying firms, the report said. At the same time, the department for Business, Innovation and Skills estimated 350,574 non-VAT registered firms were trading in digital products, but HMRC’s research did not reference this figure.

Accountants and small businesses alike have lamented the lack of timely and clear information given before the rules came into force. 

The thousands of businesses that weren’t aware they were affected until a few weeks before the rules came into force, was a result of this underestimation, Enterprise Nation claimed, saying this oversight affect who was contacted and how. 

And the Revenue’s VAT Mini One Stop Shop (MOSS) system was aimed more at those above the UK’s £81,000 VAT threshold. However the report found eight out of ten small businesses fell below this threshold. 

The filing deadline for returns to the quarter 31 March were due 20 April. AccountingWEB members have been sharing their experiences of how this has gone. 

Tim Vane said it was annoying to have to do it less than three weeks after the end of the quarter. He said the "real effort" as in the planning and preparation, and in ensuring all clients have made their payments. 

However others, such as Kent Accountant, choose to veer away from clients who fall into this category: “I avoid clients that have to comply with MOSS...life is too short.”

And clients themselves have taken to social media to express their frustration at the rules, including writer Cory Doctorow, who summed it up on Twitter with: “Just filed my first #VATMOSS return with HMRC – cost me £700+ in software and accounting to calculate that I owed £18.74.”

The report warned that long term consequences as a result of these underestimations and miscommunication are likely to be a rise in costs for digital services within the EU. In the shorter term, the report says thousands of smaller firms have had no alternative but to “take a painful hit to profits while facing a long, expensive fight with British and European tax authorities”.

Emma Jones, founder of Enterprise Nation said that if details of the new charges and reporting responsibilities had been communicated earlier, there could have been scope for both a solution to the problem and an opportunity to make amendments to the bill. 

“This report shows that while a minimum VAT threshold would be the best solution, that may well be some way off, partly because other European countries have never had a threshold at all, so will be reluctant to accept one at this stage," she said. 

HMRC had expected that the rest of those below the VAT threshold would already be selling via marketplaces like Amazon. However, 65% of small businesses said they sold products via their own website with only 17% reporting that they sold via a platform. 

VAT expert Les Howard said he thinks the research confirms conclusions by various lobby groups.

“For some months [euvatadvice.org] have been warning that hundreds of thousands of micro businesses would be adversely affected by MOSS.  My own experience confirms this, with a significant number of micro businesses actually closing down, or choosing not to deal within the EU, or changing their processes to ensure they supplies fall outside the MOSS rules.”

Howard said the low number of MOSS registrations, which is only a few thousand across the EU when many more were expected, puzzles him. 

“I wonder if some are awaiting a major concession from the EU, and hoping that will mean they do not need to register. Once matters have settled down after the election, and any EU changes, there will be a great opportunity for training to be delivered in various contexts, to enable those businesses who are still struggling to deal withe VATMOSS to do so.”

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Replies (7)

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By ireallyshouldknowthisbut
22nd Apr 2015 08:59

.

The low number of MOSS registration across Europe may puzzle the Tax Expert, but does not puzzle me in the slightest.  It seems quite sensible to me to stay well out of it. 

The writer paying £18.74, surely he has been very poorly advised. My advice for a client owing £18.74 would be to do nothing at all.  And if it comes to it, pay any tax and fine which presumably will be much lower than the cost of compliance.

It is a pragmatic solution to poor legislation, and HMRC simply do not have the resources or inclination to go chasing around for small sums, so why advise clients to torture themselves?

 

 

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By Paul Soper
22nd Apr 2015 12:06

Road to Damascus...

Nice to see that VAT expert Les Howard, who only at the end of last year was telling us all how we were suffering from a number of misconceptions about VATMESS and how easy it all was, now acknowledges the potential scale of the problem and the difficulties it creates for small, and I do mean very small traders.  Should HMRC have made a better estimate?  They probably used the information they collect for self assessment purposes which is very sketchy at best on the actual nature of businesses that the self employed carry on.

But the identification of 300,000 odd businesses actually affected comes from statistical information published by the Department of Business Skills and Vince Cable - a survey in 2012 no less so certainly available to HMRC.

As for the low takeup of MOSS across the EU it was largely as the result of the efforts of Taxamo, an Irish software company selling a solution, recruiting HMRC's Andrew Webb, and publicising the problem in the UK that our digital traders became aware of the problem.  Members of the EU VAT Action Campaign Group on Facebook report that in many other member states of the EU it can be next to impossible to find out information from their VAT authorities and I suspect that a lot of very small traders, especially in countries like Spain where there is no de minimis for registration, just don't present themselves to their tax authorities.

For more information visit the site http://euvataction.org/ to see how individuals in the UK are alerting traders to the difficulties, doing the revenue's job for them you might say...

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By carnmores
22nd Apr 2015 22:26

Am i right as has been reported that

MOSS applies to all business even if they have a turnover of £1,000 p.a as they have to comply with other countries registration limits , completely daft why didnt a civil servant work it out .

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By carnmores
22nd Apr 2015 22:28

it is correct

this is really sad..........

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Locutus of Borg
By Locutus
23rd Apr 2015 11:13

Micro entities and MOSS
Like Kent Accountant, I probably wouldn't bother taking on any small MOSS clients. It would be difficult to explain to them why they have to spend hundreds or thousands of pounds extra in compliance costs, to essentially get the same VAT result as before.

Sorry, Les Howard, it's not really that much of a shocker that only a few thousand of the EU's million plus population of digital traders have bothered to register. The minority who actually know about it are largely choosing to ignore it.

If I was one of them, I would probably follow ireallyshouldknow's advice by keeping my head down and paying the small fine in the event of the unlikely chance of actually getting fined. This is probably infinitesimally small if the trader wasn't VAT registered in the first place.

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By DMGbus
23rd Apr 2015 13:08

Client advice - VAT MOSS

Dear [client] you may or may not be aware that "VAT MOSS" (also sometimes referred to as VAT-MESS") has been created by the EU  & HMRC.  

You have a choice - either comply at a certain cost [estimated to be several hundred pounds at least for website customer location ID software] or desist from making sales of Apps or Digital services products to consumers in other member states.  

Regarding the option of ceasing to make electronic supplies to EC consumers then as a start you should make it clear on any webpage or order form that customers must certify where they reside and if they state "London" (or anywhere UK) then OK sell to them and UK VAT will be applied but if instead they stated for example "Paris" (ie. in EU but outside UK) then you cannot supply them as you are not set up to comply with VAT MOSS. 

Please note that if selling to other businesses in Europe that is OK as they should supply you with their other-EC-country VAT number and self-account for VAT under the reverse charge proceedure.   

What I cannot say at the moment  (as no web forum has yet raised the issue) is if a consumer customer wrongly stated say "London" when they really were in say Berlin then whether you should have a forensic software system [eg. detecting and locating IP addresses - but then they might use proxy servers anyway] to stop this happening.    

Whilst I cannot apologise for the idiocy of the VAT MOSS rules [I didn't invent them nor do I support the concept], I fully sympathise with you regarding any disruption that this unfavourable tax regime causes to your business and if you choose to continue to make any digital services supplies to consumers in other EC countries then I am more than willing to provide any necessary advice that you might require so as to comply.

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By Paul Soper
23rd Apr 2015 17:09

Close, but no cigar

DMGbus gets close I suppose, but the traders in the main, hundreds of thousands of them are actually under the UK registration limit so can't apply UK VAT even if they wanted to.  It is crazy that EU bureacrats come up with a scheme which will have hundreds of thousands of small businesses who want to be legal, they want to do what the governments tell them to, faced with the threat of ceasing business or becoming an illegal trader.  Under the VAT MOSS law if a trader makes a supply they are required by law to maintain two pieces of evidence to demonstrate where a customer is located, and if one of the two pieces contradicts the other they are supposed to get three pieces of evidence, so that 2 of the 3 will agree (as if!  French resident uses a Belgian credit card to buy whilst sat at a terminal in Barcelona for delivery to his girlfriend in Milan) and keep this evidence for 10 years.  If asked to submit to a process of audit the evidence over the 10 year period (which must be maintained on a computer server situated in the EU, so forget Microsoft or Apple cloud storage) must be provided in a computer intelligible form such as XBRL!  It is soooo much worse than most people realise...

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