EU VAT law could kill thousands of online businesses

Re: Amazon is a seller of physical goods...

As I understand the plan is already in place to expand the new rules to all goods and services sold online - digital or physical, bespoke or prepared - as soon as 2016.

Basically, if you run a business that sells anything over the internet, this is going to affect you. If you're selling direct, it'll all but force you to do your business through a corporate platform that will handle VAT instead, and if you're already using those it'll make your income less predictable as the VAT share of the sale price will suddenly vary depending on where the sales come from. Not to mention that many of the big platforms (Etsy, Steam and Bandcamp spring to mind) haven't commented on whether they will handle this for sellers, and some have already said they won't (iBooks).

This is going to bite small bands selling mp3s, comic artists selling ebooks and those kinds of people *big* time. Freelancers and independent artists don't usually have trade orgs or any other kind of organised representation, so "missing" them in these considerations and the discussions HMRC say they've been having with SMEs is an easy oversight, but the impact on them is huge.

Basically, a business that doesn't make enough to afford an accountant and sacrificing margin to third-party sales platforms to do the work for them is going to be all but shut out entirely from the digital single market that Andrus Ansip praised so highly in his blog post. Good work all round.

Re: ...VAT for 28 different states... @Tom 13

Well VAT was relatively simple until this change...

There is a good introductory article from a US perspective on the change here: http://www.happybootstrapper.com/2014/im-us-whatll-happen-just-ignore-eu-vat-changes/

But for the full mind numbing impact, do look at the "full listing of VAT rates in different EU countries"...

Re: This is entirely UNreasonable

HMRC did apparently push for a low earnings threshold, given we have one for usual VAT. Apparently, though, most EU countries don't have a threshold so there wasn't much appetite for it. The one-stop-shop is the solution that was used to make it easier.

It's easy to say ignore the rules, right up until you find you're unlucky enough to be being made an example of.

I could quite easily not declare some of my income, but whilst the probability of getting caught is low, the risk far outweighs the benefits. It also only takes upsetting one vindictive person for it to all start unravelling - ignoring the new rules is a foolhardy thing to do....

Re: This is entirely UNreasonable

"Isn't there some kind of minimum total turnover for this law? If not, it should be introduced."

There is, that's the point. It's higher in the UK than it is in much of the EU (or, as in some cases, no threshold at all)

In the interest of EU harmonisation, the VAT registration threshold should be equalised. Based on past examples, that would mean all of the EU members raising their threshold to the that of the member with the highest threshold but since this affects individual countrys tax income, we know that won't happen.

As an example, when copyright terms were harmonised, items out of copyright before the change were suddenly back in copyright because we all had to increase our copyright period to 60 years to match Germany rather than Germany dropping to 50 years like the UK (or lower as it was in some other EU countries). EU "harmonisation" almost always means whatever is best for tax and/or business and worst for the consumer.

Re: This is entirely UNreasonable

"I would advise to ignore completely the new rules. Realistically, nobody cares about such a business."

Cool - I'll tell the auditors that an anonymous advisor on a comments section of a tech site advised me as such. That'll cover me.

Re: This is entirely UNreasonable

In principle I agree.

In practice, tax men can be anal and merciless. It might not be in your best interest to ignore it.

Re: This is entirely UNreasonable

VAT is a "Value Added Tax", and the whole idea of is is that at each stage in a production process where value is added, it is taxed.

If a manufacturer buys paper from a factory, he pays VAT because that factory is assumed to have added value to turn wood pulp & water into paper. When he turns that paper into pretty bags he adds value, and his purchaser then pays VAT on the additional cost for adding that value. OK, so the current scheme is implemented through a serious of pay-and-claim-back-when-you-sell steps, but the principle still applies. The added value is taxed.

So, logically, why is the VAT not payable in the place where the value was added? If that manufacturer is in the UK, and the purchaser is in France, the value was still added in the UK. It doesn't make logical sense for the final purchaser to pay the tax in the state where they live, since by definition that final purchaser is adding no value. If that French purchaser walks into the manufacturer's shop in London, buys the product, and takes it home to France, he won't be expected to claim back the VAT at Dover & pay French VAT when he gets home. Why should it be different if he is making the purchase by proxy?

The cynic in me can't help but wonder if this is an EU backdoor to ensure that wealthy countries still get tax income even as their manufacturing industry is exported to cheaper places. If a German goes online and buys a cheap TV that is made in, and shipped from, say, Romania instead of one made in Hamburg, the German treasury will still get the tax.

Re: This is entirely UNreasonable

" It really is the easiest system to use"

Is that why its scammed all the time?

Re: This is entirely UNreasonable

But for a couple of quid why not make your business UK only?"

1. How? The platforms (Folksy, Etsy etc.) don't allow that.(Even if we had our own website we would need to implement IP Address geolocation etc to try and block them)

2. Many of the sales are to outside the EU

I shudder to think what rules other countries outside the EU will now introduce in retaliation!

Re: This is entirely UNreasonable

I agree about the relative ease of keeping VAT records for a UK-only business. If you are trading over the internet you should have a computer, and a computer program to automatically do the bookkeeping.

But trading across intra-EU borders was always a bit of a mess. Where is the computer software which complies with the new system? I never switched to a fully computerised system. I'll be honest, it can be a bit gnarly for somebody without some specific training, and my business wasn't making enough transactions to make full computerisation worthwhile.

The businesses being affected by this are being hit by a horrible increase in complexity, with a high transition cost in buying new software, training to use it, and testing it.

Re: This is entirely UNreasonable

>But for a couple of quid why not make your business UK only?

But how would you know?

If all you get is an email/paypal address how do you know if the visitor to your site is British?

Your foreigner can be quite tricky, some of them even speak English.

You could insist that they explain how to bowl a Yorker or play a few rounds of Mornington crescent, that should catch Jerry out.

Re: This is entirely UNreasonable

My wife is in the same position. She's doing her best to keep up with this issue, but virtually daily HMRC's position changes. That idiot Cable said at opne point that it wouldn't afffect many businesses! The latest from HMRC is indeed that if you receive an order and then send the pattern by email rather than an automated donwload, then the new regs don't apply to you. But they'll change their minds in a few days time. It's a fiasco. HMRC also claimed they;ve been making businesses aware of this for 18 months. They have, but only the big businesses which are already in the VAT schemes.

Oh, Cable also suggested that small businessed would have to sell through intermediaries who would in turn be liable under the new regs. For pattern sellers, for example, at a couple of quid a time, and a low turnover, how exactly will that be feasible?

Re the VAT reg comment, that's no use at all. ANYONE selling into the EU is liable for this, including non-EU sites, for example, US sites. So VAT registration has nothing to do with it.

Re: This is entirely UNreasonable

The Flat rate scheme doesn't apply to digital downloads unfortunately.

Re: This is entirely UNreasonable @Andrew Richards

The Flat Rate Scheme (FRS) only applies to your UK business. EU business is effectively outside of the scheme and has to be fully accounted for. Additionally, once you join the FRS, you are required to charge VAT on ALL your sales. No HMRC have at least set up MOSS ( https://www.gov.uk/register-and-use-the-vat-mini-one-stop-shop ) so you only need to register for VAT for EU trading purposes.

I would also advise to approach the FRS with caution, as whilst it is simple, it does have some gotcha's which may be relevant to your business.

Re: This is entirely UNreasonable

There is a must register for the new rules - if you sell to an EU member state then theres no lower threshold of earnings. You can deregister from UK VAT but not from the new rules.

You don't _have_ to use the MOSS though. The EU is more than happy for you to instead register for VAT in any EU country you make sales to.

Re: This is entirely UNreasonable

"(Apologise if I missed the you must register for compliance requirement?)"

Apology accepted as for digital downloads the threshold in £0

Sellers have to VAT Register and use the MOSS system but DON'T need to charge VAT on UK sales if under £81,000p.a.