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What next for VAT MOSS?

14th Sep 2015
Editor AccountingWEB
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Representatives from all EU finance ministries were at the Fiscalis conference in Dublin last week to discuss the implementation of the new EU VAT rules, and how they have been working since their introduction in January 2015.

As demonstrated by a recent AccountingWEB article, the new rules have proved controversial in some quarters, particularly for those running small businesses in the UK.

So as the dust settles on the Irish conference floor, do finance ministries still rate the new tax rules, or is it likely to be vamos for VAT MOSS?

One of the key takeaways from the consultation was a general agreement that there should be a threshold to exempt smaller businesses from the rules. The commission stated that it intends to propose legislation for a threshold beneath which companies will be VAT exempt, but did not confirm a figure.

There was also a general agreement that above this threshold there should be what many are calling a ‘soft landing’: A simplified version of the rule for businesses that does not create a financial cliff for those who hit the threshold.

While the Financial Times declared the exemption threshold statement as a partial victory for small businesses Clare Josa, co-founder of EU VAT Action, a campaign group who presented a number of arguments and amendments to the conference, remains cautious.

“We made great progress with the member state tax authorities, helping them understand the true nature of the issues. There were some ministries who still didn’t believe there was a problem, but pennies are slowly starting to drop, particularly as they are realising that businesses closing rather than continuing to trade under the new rules will hit their own tax revenue.

“However, all the agreements were general and not unanimous, which laws on this issue have to be. Also, the proposed legislation could take two to five years to come in. We need to do something now, because if we wait two to five years then the digital single market will be dead.”

VAT specialist and AccountingWEB contributor Les Howard stated that: “a modest threshold is to be welcomed just on a practical basis. The situation is already complicated by the fact that different EU member states have different registration thresholds, so you still have the problem of someone who’s not liable to be registered for VAT but is liable to be registered for VAT MOSS. It also protects microbusiness where the impact of VAT MOSS is prohibitively expensive.”

However, Howard also defended the new rules, reiterating his comments from earlier this year: “You have to ask – ‘what am I comparing that to?’ A lot are comparing it to not being registered for VAT. I was comparing it to a liability to register for VAT in half a dozen member states because that was the alternative to MOSS before 1 January. MOSS is a simplification not a complication”

Speaking after the Fiscalis conference John McCarthy, chief executive of Irish tax solutions firm Taxamo said: “The current issues around VAT MOSS centre on a lack of awareness of the new rules and for some, the perceived difficulty in complying with these rules. With regard to awareness, governments need to do more to ensure that their digital merchants know about these rules and are not caught out by an unexpected tax liability down the line.

To make life easier for merchants who wish to comply, the EU needs to address issues that make things hard for merchants, like having an official EU wide VAT rate API and the reliability of services such as VIES.”

Another takeaway from the conference as reported in BusinessZone was that 95% of complaints about VAT MOSS have come from the UK. Responding to these findings EU VAT Action’s Clare Josa said: “The UK also has an extremely healthy, thriving micro-business sector because the barriers to entry for are very low compared to other member states, so it is hitting the UK harder because of the nature of our business sector.

We also had HMRC putting a huge amount of effort on publicity, plus we have a well-organised volunteer campaign group and we’ve been getting people to write to people, so all of the above is a factor.”

Les Howard added: “HMRC had to correct some of their initial publicity – more than once – as well as introducing one or two concessionary aspects to the scheme, so clearly the process they followed was not really very professional and it meant that small businesses were left scratching their heads. It’s complicated stuff anyway and if the material is wrong what are they supposed to do?

“Right up to the deadline stuff wasn’t there and you couldn’t register online, so there was a whole set of practical issues that went wrong and frankly it’s an HMRC competence question. For these smaller organisations it creates a headache, and it’s a bigger headache the smaller the organisation.”

Replies (10)

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By DMGbus
14th Sep 2015 13:27

Original purpose of VAT MOSS

As I understand it the original reasoning for the introduction of VAT MOSS was fully justifiable and acceptable - to counter avaricious multi-national companies choosing where to be based purely on the basis of mitigating VAT liabilities (ie. choosing to base themselves where the lowest VAT rate existed).

It was unfortunate that the impact of VAT MOSS on smaller traders was not considered at the time of implementation.

It would be good to think that the EU powers that be have learnt a lesson in this instance and not only will a sensible turnover exemption (*) from VAT MOSS be now implemented but any future cross-border VAT legislation will be mindful of the issues raised by VAT MOSS, ie. disproportionate compliance costs for smaller businesses.  

(*) The distance selling thresholds are, in my opinion. a fair starting point in this context.

 

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By ireallyshouldknowthisbut
14th Sep 2015 14:56

.

Sounds like the slow wheels will be motioning towards doing the bloody obvious.

In the mean time the small traders are as ever, in limbo, caught between complying with daft rules and keeping their heads down. 

I would imagine the high level of winging from the UK on this matter is a function of the high levels of small business in the UK, and also the fact we tend to actually follow rules.  Some of our southern European cousins tend to be more relaxed about rules. 

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By Paul Soper
15th Sep 2015 16:45

What is really remarkable...

And I mean really remarkable is that this belated acceptance by the EU of the real need for help to small business was brought about precisely because small businesses, really small businesses, joined together through Facebook and social media like twitter, to begin to talk very loudly, at first to HMRC and then to the EU and have been able to persuade organisations that we accountants think are completely resistant to change that change is necessary.  I think we could learn a lot from people selling knitting patterns, practical guidance, personal motivation and the like.  You can make a difference. We can make a difference.

Contrast this with the reaction of the hundreds of thousands of accountants when HMRC issue a consultation document.  Do we read it, even glance at it, reply to it?

I chose, at random, a consultation last year on an issue that would affect the very many commercial organisations that offer a discount for prompt payment and used to able to base the VAT liability on the discounted price even if the discount was not taken - the revenue publish the outcome of the consultation and the number of responses they received - a total of 38.  Accountants - 9, Professional bodies, also 9.  If we simply accept what is happening without participating we have only ourselves to blame when we get saddled with change we find unacceptable.  Here's another - improving the CIS - 45 responses.

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By Tom Herbert
15th Sep 2015 17:18

Thanks...

... for commenting Paul.

Paulsoper wrote:

And I mean really remarkable is that this belated acceptance by the EU of the real need for help to small business was brought about precisely because small businesses, really small businesses, joined together through Facebook and social media like twitter, to begin to talk very loudly, at first to HMRC and then to the EU and have been able to persuade organisations that we accountants think are completely resistant to change that change is necessary.  I think we could learn a lot from people selling knitting patterns, practical guidance, personal motivation and the like.  You can make a difference. We can make a difference.

Contrast this with the reaction of the hundreds of thousands of accountants when HMRC issue a consultation document.  Do we read it, even glance at it, reply to it?

Do you think this is due to these microbusinesses having so much to lose (ie their livelihood), HMRC's perceived inflexibility in the eyes of finance professionals, a bit of both, or something completely different?

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By Paul Soper
15th Sep 2015 22:06

Interesting...

I think HMRC were so surprised, initially, that these very strong (mainly women) were protesting that they were taken aback more than somewhat.  The internet in 2006 when the proposals were first envisaged was a completely different environment to today, after all the concept of an ebook, or a Kindle didn't exist and downloads were from the Amazons, not knitwear designers.  It is just a rapidly changing environment that HMRC had failed to appreciate the developments even though the Department of Business etc under Vince Cable had identified hundreds of thousands of small businesses with no employees and operating through the internet in 2012 HMRC thought that only 30,000 traders would be affected, most of whom sold through Amazon and iTunes - how wrong they were.

The small businesses had little fear of HMRC and just decided to run with it, pooling resources, identifying key officials within the EU and just targeting them - I must confess that even though involved from the beginning I thought their chances of any kind of success was minimal but they proved us all wrong!  It is an amazing story to have got this far and if they succeed in persuading the EU nations as a whole to accept a de minimis limit to protect small business it will be worthy of a film script. 

I think as accountants we accept too much, I berate groups that I speak to and try to persuade them to take part in consultation but with little success.  The only consultation where I think, as accountants, we succeeded was the proposal some years ago for 'income splitting' and the level of protest from the profession was so great that HMRC didn't even publicise the outcome of the consultation.  But these small businesses have shown that you can, if determined enough, force change against all the odds.

 

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By Tom Herbert
16th Sep 2015 09:29

To convince the majority of EU member states to accept a threshold is indeed a fantastic achievement and one worth shouting about. However, from what I'm hearing it may take a lot to convince the more reluctant member states and get meaningful legislation through, and it could take up to five years. In the meantime, do you share EU VAT Action's fears that the digital single market will be decimated by the existing rules? 

I like the idea of VAT MOSS the movie! I'm hoping for a 5-second cameo, not sure if they could afford Jason Statham though...

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By Paul Soper
16th Sep 2015 18:15

Decimation?

I think that the vast majority of the people affected by this are blissfully unaware of the rules, which is a worry in itself - certainly under the VoES regulations that were in place from 2003 onwards very few businesses registered as I understand it - however I do think that this will act as a brake on the further development of small traders, and, as the UK is probably the country with the greatest number of these traders there will be suffering.  I think a reduction of 10% is easily on the cards, the classical definition of decimation, probably much greater.  What is even more worrying is the spreading of the idea to other countries, Japan, South Africa for example, as well as the EEA countries, Norway, Switzerland who have also introduced the same scheme but critically are not part of VATMOSS, leaving traders who want to be compliant with no alternative but to register in these countries, not at all easy or convenient.  The OECD started the ball rolling by recommending that profits are taxed where the consumer is located without taking account of these micro-businesses because at the time they didn't exist - it is only in the last 5 years or so that the idea of these small download businesses has existed.

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By Tom Herbert
18th Sep 2015 07:59

Thanks Paul. I've been hearing about non-EU countries adopting comparable measures and the discussion of a more global approach to digital taxation that may well have a similar impact on UK businesses. I believe the OECD are meeting in December to ratify this? It's certainly something we'll be keeping an eye on over the coming weeks and months.

And Rosie, thank you for your comment. I agree that it's not just small businesses that are affected, but as Les Howard points out the smaller the business the bigger the headache. It's been interesting that the majority of the coverage (including ours) has focussed on the impact of the rules on micro/small businesses, and that's certainly a glowing testimony to the work your group has done. 

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By mccabesworld
24th Oct 2015 22:21

VATMOSS U-turn (in part)

"Molly Scott Cato, Green MEP for South West England, has welcomed the U-turn by the Commission on the question of the exemption from VAT changes that have been so destructive to small digital businesses in the UK. Dr Scott Cato was the first British MEP to take seriously the threat to small businesses from the VAT changes introduced on 1 January and has repeatedly lobbied the Commission to make such a change.

The new regulations were designed to prevent multinational corporations from avoiding tax on digital sales in other countries. However, the changes have had a devastating impact on some of the South West’s micro-businesses and mean that VAT on digital products sold in the EU are chargeable in the place of purchase rather than the place of supply. This means micro-businesses are obliged to collect VAT from up to 28 different EU states at 75 different rates.

News of the change of heart by the Commission came in response to a written question sent from Molly Scott Cato’s office. Mr Moscovici, European Commissioner for Economic and Financial Affairs, Taxation and Customs, said that the Commission was working to minimise burdens attached to cross-border e-commerce arising from different VAT regimes and to introduce a VAT exemption threshold for start-up companies in respect of their EU sales. Dr Scott Cato said:

“I am delighted to hear that the commission is now planning to offer a life line to the small businesses who sell digital products and services across the single market. The VAT changes were heavy-handed and poorly thought through. It was dreadful to see new and promising small businesses being so negatively affected and I am glad they look set to be exempted from the VATMOSS system. I am aware, however, that this news comes too late for many small businesses, and will continue to press for them to be compensated.”

Talis Kimberley, who runs a digital micro business based in Swindon, said:

“This is very promising indeed – but micro-businesses need that threshold now, and it should not be limited to start-ups but should include tiny businesses however long-established.

“I’m grateful to Molly Scott Cato for taking this up and working to help the thousands of people affected by these changes brought in almost a year ago. There are a great many micro businesses which are apparently invisible to those who created this legislation. Sadly, many such businesses have been forced into the arms of larger platform; to constrain their geographical sales, or in some cases cease trading altogether.”

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By Paul Soper
25th Oct 2015 00:07

If only there was a U-turn but if you think the VATMESS is bad enough here is confirmation that the evil is spreading, largely thanks to the OECD who had this stupid idea in the first place - http://techcrunch.com/2015/10/10/vatmess-is-about-to-get-much-messier/

 

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