VAT MOSS: The impact on small business

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Rachael Power
Community Correspondent
Sift Media
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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. 

Members of AccountingWEB and BusinessZone.co.uk also presented first-hand evidence of the hardship caused to counteract Howard’s arguments.

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“They have been doing this for the last 11 years under a now withdrawn scheme, VAT on Digital Services (VoES) and businesses that did, in the States and Canada for example have been notified that they must now migrate to a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: 

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? 

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30th Jan 2015 12:45

Restricting e-goods or services to the UK only

"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."

Which appears to be far easier to say than do, as one of the major problems appears to be collecting the evidence needed to prove the location of the buyer. This either involves technical issues in collecting accurate data, or asking all customers intrusive questions that will put many off buying.

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30th Jan 2015 13:28

Why #VATMOSS is a #VATMESS for small & micro businesses

There's a lot of confusion and dare I say it, misinformation out there about #VATMOSS so it's great that accountants and bookkeepers are being more vocal about it on Twitter, via blogs and in articles like this!

Paul Lancaster
Sage One UK & Ireland

 

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30th Jan 2015 14:27

Authors

Proving to be difficult for Authors whose books are popular in many countries. Still have to calculate VAT on non penny ha'penny sales.

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30th Jan 2015 17:26

Like a good read? Enjoy this!

Here is a link to a blog from a small trader attempting to register for the new MOSS scheme and a day by day account of the pitfalls encountered.  It also has a link to how you actually enrol for MOSS which a lot of people may find handy.  The deadline for registration using the UK MOSS scheme is 10th February if any other EU nation sales were made at any time this month, if this deadline is missed the taxpayer will have to register separately in any country in which sales were made or be subject to penalty from those countries for failing to register.  They would be able join the UK MOSS from 1 April.  It may also be possible that they could join the UK MOSS from 1 February provided that they apply by 10th March but there is no confirmation of this.

Now what worries me is the outcome of the last few days of the blog when they were able, it seems to register for MOSS.  HMRC found a work-round for early criticism of the new rules in allowing a person to register for VAT for digital services below the threshold and submit nil UK VAT returns as well as the new MOSS returns, completely contrary to the existing legislation I might add.  This particular business is, however, already registered for VAT, even though for some years their turnover was below the deregistration threshold, and so could have deregistered but didn't.  They asked if they could now use the appropriate description and stop accounting for VAT on their UK sales and they have been told that they can!  This strikes me as a very dangerous situation to be in - has anyone else got clients with similar problems?

I have duplicated this in another thread written by Les Howard so my apologies if it comes up twice...

https://www.lfs.net/vatmoss/

 

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30th Jan 2015 20:51

Crazy EW

So now EU want's to finance their austerity by this ridiculous method. This is what happens when attention is not given to fundamentals & taxes are not collect in time on your land. No need to go far more technical; what surprises me is which idiot came up with this idea; without having any vision on how this is going to affect small business.

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02nd Feb 2015 19:10

um, no you probably can't restrict sales to other EU countries

HMRC have said that this might contravene anti-discriminatory legislation. And if I were one of the smaller EU nations, I would be lobbying hard that this was the case, because otherwise they will find a lot of the internet shut to them quite quickly. There are get outs in the anti-discriminatory legislation of course, but it isn't clear whether not wanting to carry the burden of paying tax would be seen as a good reason. Businesses should use caution and get further advice if they are considering this option. Though of course nothing stops non-EU sellers doing this. And I was denied my first online purchase just a few days ago for VAT reasons b

y a Canadian seller,

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16th Mar 2016 06:09

Small Business

Small business owner are always worried about certain changes in the accounting and financial system. VAT issues are also one of them; the increase of VAT may be the biggest headache for small business owners; in every financial year we have found that small business organizations are suffering from VAT and other issues and to overcome these issues they need professional support from business organizations and financial institutions through which they are able to develop their business productivity.

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