Digital platform Ghost will be closing down all UK operations and incorporating in Singapore due to repeated issues with the EU’s VAT regulations and HMRC.
In a post on the blogging platform’s website yesterday outlining reasons behind the move, company co-founder John O’Nolan said the current EU legislation around VAT MOSS was “completely untenable”, and called HMRC “unequivocally the most incompetent organisation in the world”.
A ‘complete disaster’
Outlining the issues Ghost encountered with the EU’s controversial VAT regulations for sales of digital services and products, O’Nolan told AccountingWEB it had been a “complete disaster” for the not-for-profit foundation.
From 1 January 2015 VAT on digital products sold in the EU was chargeable in the place of purchase, rather than the place of supply. The regulations were introduced to stop large corporations diverting sales through low VAT countries, but many small businesses previously exempt under UK VAT law have been caught up by the changes, and landed with significant extra compliance burdens.
“When VAT MOSS came in we had to rewrite our entire billing system at least twice to try and collect all the location information required”, said O’Nolan. “We had to change the way we were generating invoices, make sure they were sent out correctly and then reconciled, then had to have them all come into Xero, our bookkeeping system.
“We were also looking into having a two-sided marketplace – people buying and selling Ghost products on our site. At that point you have VAT MOSS squared, because you have the seller’s location and VAT registration status, you have us in the middle and then the buyer’s location and VAT registration status.
“According to the EU VAT Action group there are 81 VAT rates across 28 member states, so adding one (non-EU customers) our marketplace would have to accommodate 82 rates for sellers and 82 rates for buyers, leaving 6,724 possible tax combinations on transactions where we’re expected to charge (and report) the correct VAT; all of which is on an average total transaction size of around US$10.
“For a team of eight people, completely self-funded and bootstrapped, it’s just not realistic. You’d have to build that for the next three years and nothing else.”
‘Tens of thousands’ wasted
O’Nolan’s story typifies the frustration felt by many micro and small business owners towards the regulations, and although a VAT MOSS registration threshold has been proposed progress has remained glacial, leaving small, digital businesses such as Ghost unsure whether to continue trading in the current environment.
“In terms of the work we’ve done on VAT MOSS”, continued O’Nolan, “so far we’ve wasted tens of thousands of dollars and months of development time when we should have been making the products we set out to build. It’s slowed down our roadmap, allowed some of our competitors to get ahead and caused untold amounts of stress.
“The most ironic thing about it is that the big corporations it’s supposed to target easily find their way around it because they have the financial flexibility to exploit those sorts of things.
“The only people VAT MOSS affects are the people it's not supposed to – micro or small businesses – who have no capacity to deal with the reporting obligations and who are massively handicapped by it.
“My hope is that at the very least this [Ghost’s move] sends a signal that businesses based online have the ability to move to environments which offer them better services. We’re in the fortunate position of being able to vote with our feet and change service provider to one who treats us better. If the EU made themselves more appealing for businesses there would be less need to try and milk every last penny out of everyone.”
Experts have called into question whether Ghost’s relocation will actually allow them to escape their VAT MOSS obligations, as on intra-European purchases the foundation is still required to charge VAT and select a country to register with as a non-union MOSS participant.
O’Nolan was currently reluctant to be drawn on this point, stating: “We’re actively figuring out all the details around how to handle our move from the UK to Singapore and will be sharing more in the near future”.
Ghost’s move comes as HMRC has started to de-register 3,000 small businesses from the VAT MOSS system, treating them as ‘hobbyists’ rather than businesses in line with recent guidance.
A constant struggle
O’Nolan was also scathing about his dealings with UK tax authority, which he called “unequivocally the most incompetent organisation in the world.”
“It’s been a constant struggle”, said O’Nolan. “They would send us notices and demands for tax, all of which were incorrect, and whenever we tried to call them to tell them it was incorrect, we’d usually get their automated answering service: ‘We are too busy to deal with your call right now. Goodbye.’
“For a small business like us with a few employees and completely self-funded, we don’t have time to be dealing with this.”