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.”
Still liable?
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.”
About Tom Herbert
Tom is editor at AccountingWEB, responsible for all editorial content on the site. If you have a story that might interest us or wish to comment on the site's coverage get in touch via the site's private message function or Twitter DM (@AWebTom)
Replies
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Ghost
They will still be here in spirit.
I can feel his pain
My only advise is wait for give few month until referendum; this rubbish is on the cusp of thrown out. I can certainly feel the pain, where instead of focusing on business these people are doing HMRC job...
Silly comments
Why does O'Nolan think he escapes VAT MOSS just because the organization is moved outside the EU? Sure, if the organization does not sell to EU citizens then there is no problem - but if that's true there never was a problem. If O'Nolan sells to EU citizens then he has to charge and collect VAT wherever the organization is based.
We created a system for selling our digital products and supporting the new VAT arrangements ahead of the January 2015 start date and have since provided the software to nearly 400 small EU and non-EU businesses that sell digital products in some form. You can whinge and whine about the law all you like but its not going to change without the agreement of all member states - and we know how likely that is. So isn't it best to get on with meeting the legal obligations not actively evading them? How does that help stakeholders of the organization?
And I absolutely don't recognize the characterization of HMRC. Maybe I'm just lucky but whenever I've called, the help has been great. If the first person has been unable to help they've arranged for me to speak to a colleague or call back. Perhaps now I've written these comments my experience will be dreadful. But maybe, just maybe, O'Nolan has an attitude problem.
I suppose the reason
I suppose the reason is that if you have moved outside of the EU then there is little interest in anyone enforcing the EU's laws.
It is rather naïve of the EU to believe that businesses operating outside of their territory will slavishly follow their complex and bureaucratic rules, especially when the vast majority of affected businesses within the EU choose to ignore those same rules.
1.5 out of 10 service
HMRC is in my last official evaluation a 1.5 out of 10 tax service, down from 3 out of 10 in 2009. So O'Nolan is right about that in my view.
However, that also provides opportunities as well as hassles. I have not dealt with VAT MOSS but I'd certainly have explored the possibility of filing any old credible drivel to get a tick in the box, and seeing what then happened.
That's got to be better than what has actually taken place.
Oh dear...
As I posted on Facebook Ghost will not be helped by leaving the EU - if there are EU sales, of any amount, then they will still have to either register in each country or elect to use the Non-union MOSS scheme. It should be borne in mind that this problem is spreading to other countries in line with the G20/OECD BEPS project - so Norway and Iceland have introduced the same rule. They are not part of the EU, so not part of MOSS but are obliged to operate the rules because of their membership of the EEA, the European Economic Area, which we would still be a member of if we leave the EU I'd guess. At least there is a de minimis limit of $6,000 and $7,000 respectively. Switzerland is in the same position but has a much higher threshold of $100,000. Internationally they have been joined by Ghana, Angola, South Africa, Kenya, Madagaskar, Korea, Japan and even Singapore (!) although they seem to have the highest de minimis. Other countries which are considering this include Australia, New Zealand, India, Thailand, Indonesia, Turkey, Israel and Canada. The problem is inescapable and where there is no de minimis limit it is intolerable for small businesses.
Leaving the EU as a country doesn't help either. It is interesting that HMRC are "de-register(ing) 3,000 small businesses from the VAT MOSS system, treating them as ‘hobbyists’ rather than businesses in line with recent guidance. Bear in mind that the total number of businesses registered in the whole of the EU to operate under MOSS is rumoured to by 12,000 this would indicate 25% of those currently registered are small enough to be considered hobbies BUT... this does not help because any of these hobbies can still be investigated directly by any of the countries into which they sell and remember there is NO de minimis in any country of the EU unless you have a physical presence there.
I await with interest Ghost's deliberations in due course but I can't see that what they are doing will help them in the slightest.
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