VAT MOSS: The impact on small business
Evidence is emerging of the hardships affecting small and microbusinesses under the new EU VAT rules that came into force on 1 January for sales of digital services and products into Europe from B2C.
Unlike most other European countries, UK businesses can earn up to £81,000 a year before they are required to register for VAT. But under the community’s 2006 common VAT directive, any firms selling digital goods to customers in another EU company have to register for VAT and account for the amounts collected in tax from foreign countries.
The VAT Mini One Stop Shop (MOSS) was designed to give them a single registration point for all of Europe.
Responding to Les Howard’s controversial article on five MOSS misconceptions, campaign group EU VAT Action said that 200 companies told them the new rules forced them to shut down due to the extra admin and cost.
According to EU VAT Action, some US firms are refusing to deal with UK companies because of the new regulations.
AccountingWEB member bobster234 complained that non-EU firms have an unfair advantage when selling similar products to EU countries because they are not affected by these rules.
Tax lecturer Paul Soper pointed out, however, that Europe’s VAT rules are meant to apply to sellers worldwide. “If they are not based in the EU they are supposed to choose a country to register in and join a non-union MOSS scheme,” he said.
“They have been doing this for the last 11 years under a now withdrawn scheme, VAT on Digital Services (VoES) and businesses that did, in the States and Canada for example have been notified that they must now migrate to a non-union MOSS.
According to HMRC 1,000 businesses registered over the 12 years period for VoES.
Microbusinesses are having to review their prospects in light of the extra compliance costs forced on them by VAT registration and collection. Other costs coming into play include the fees from online sales and marketing platforms - and whether they are compatible with VATMOSS.
According to Soper, stated aim of the EU to extend MOSS to encompass not just e-suppliers but all supplies of goods and services on a B2C basis from as early as 2016. From 1 Oct 2015 businesses selling into Japan will have to register in Japan and start accounting for Japanese VAT on e-sales too.
The issue, Soper continued was not that small businesses did not want to comply but that they did - but found it was difficult and “frankly ludicrous”.
Working examples of businesses who felt they have had to shut were recently featured on BusinessZone.co.uk. A design company, a digital download business and a war gaming company chose to shut down due rather than take on the new compliance overheads and bring their companies in line with the rules.
In an example cited by Soper, an e-book seller has to decide whether to register for VAT in EU member states or with MOSS after making a single international sale that involved just 39p of VAT.
As some AccountingWEB members noted, many clients and microbusinesses are still unaware that they need to comply with these rules. Online marketplaces catering for these communities such as Etsy and Folksy have been caught up in the confusion surrounding Europe’s new digital VAT rules.
HMRC and the EU have added to the uncertainty by responding to the outcry with new changes and reforms - and many of the documents needed to comply with the new regime are still not available. The VAT MOSS reporting spreadsheet, for example, will not be available until the middle of February.
Given the very low chances of companies being subjected to enforcement action over VAT MOSS, one AccountingWEB member suggested accountants could let their very small business clients trade on in ignorance. But others were not willing to adopt this approach, including DJKL who would disengage if his client did not respond to requests to comply with tax rules.
Another way to avoid the rules is to restrict e-goods or services to the UK only and not sell to customers in EU countries.
For more on the new EU VAT rules, see:
- VAT on digital services: Human intervention
- EU VAT MOSS tweaked by HMRC
- Five common VAT MOSS misconceptions
How are you and your clients coping? Have you heard of any other examples of microbusinesses having to close their doors because of these rules?