Enterprise Nation hosted a meeting between the main protagonists of the #VATMOSS campaign and high ranking officials from HMRC earlier today.

HMRC chiefs, including Financial Secretary to the Treasury David Gauke, heard the compelling concerns raised by those set to be affected by the EU VAT legislation, due to start in just under a month’s time.

The group told the Minister there were four main points they wanted to be re-considered by HMRC and the EU Commission. These were:

  • A de minimis level where businesses under £81K turnover would be exempt from the new EU VAT rules on place of supply for digital services, removing the administrative burden and avoiding tens of thousands of them having to close.
  • A re-consideration of the data provision element of the legislation that would otherwise require micro-firms to retrieve and keep hold of sensitive data for ten years on their home laptops. In particular, for UK micro businesses to be exempt from the 2 pieces of information for proof of place of supply and instead to be able to use just the customer’s self-declared address. 
  • A consideration of the burden of VAT compliance placed on small platforms and marketplaces. Many are run by micro firms themselves and couldn't comply with the burden.
  • A clearer explanation of the digital products that will be affected - such as e-books, knitting patterns, music, artwork, photos, how-to-guides

Vat Moss 2

The group claimed there were many small firms that would be unable to trade as a result of the changes next year, partly around the issue of data collection and the qualification of micro-firms to legally store sensitive data for ten years, as well as the cost of compliance.

Clare Josa is an NLP trainer who uses e-books and courses as part of the marketing for her business.

She said: "We're quite convinced HMRC would not have negotiated the EU legislation the way they did had they known the likely impact it would have on so many small businesses. It's like they didn't know we existed. They do now."

She told the Minister she had two choices: either to close her business or she breaks the law.

Juliet KcKenna, novelist, said: “I have contacted my own digital publishing press (Wizards Tower Press) I use to distribute my work and they have confirmed they will be shutting their own online shop for direct sales on 31 December.

“I have also contacted Boo Books, Fox Spirit, Alchemy Press and Kristell In, platforms that market a lot of up-and-coming authors and they have all confirmed they had no idea about the new regulations."

Simon Dunant, founder of New Rise Digital, a firm that produces e-courses, claims small businesses will not be able to comply by January 1 because the software plug-ins they will need to add to their websites have not yet been developed.

He said: “I have been in touch with software companies that make plug-ins for simple Wordpress websites. They have told me they are not going to be able to produce the software in time for January 1."

Mike Cunningham, senior policy adviser at HM Treasury told the group that there was a British tax delegation heading to a meeting in Brussels tomorrow/Friday where the EU VAT legislation was due to be discussed.

He said they now hoped to:

  • Ascertain whether any other member states had experienced a similar reaction from micro firms
  • Find out whether there is an appetite in Europe for a discussion around thresholds

He pointed out that if there was an appetite, there would have to be an EU Commission proposal and all 28 member states would have to agree.

He added that the UK had raised the issue when the legislation was being debated, but there had been no similar feeling in the rest of the EU states.

Patricia Van Den Akker, director of The Design Trust, said a reaction overseas was less likely because firms in the EU have no VAT threshold.

Emma Jones

As the meeting parted and both parties agreed to keep communication channels open, Emma Jones said:

"The weight of feeling has taken HMRC by surprise but we were delighted with their prompt response. We will be working together with them to ensure VAT MOSS does not impact negatively on small businesses."

Have your say

Yasmin
Yasmin

I am based in Ireland and I have a training company. I am building my business around my 2 children and I had big plans to expand my online course product line in 2015. These regulations have made it impossible for me to do so. The response from micro firms in the UK has been phenomenal but there has been nothing here in Ireland. The population size is considerably smaller but I think the simple fact is many businesses just don't know abot the new rules. The rules have been made by people who do not understand the digital economy and in a bid to stop the big players from taking advantage of low VAT rates, they are in fact driving more revenue to them as micro businesses will search for platforms to look after the VAT compliance. This is a disgrace and unacceptable. If you want to raise revenue which the EU badly needs, go after the big players but be smart about it. Don't destroy microbusinesses in the ham-fisted process.

Nela
Nela

No one in Croatia is talking about this because 1) no one knows about it - neither would I, if I wasn't following UK based eentrepreneurs on Twitter 2) the digital market is still under-developed, and this new legislation will insure it remains that way. I hope other EU countries will be open to discussing VAT thresholds.

Nela
Nela

No one in Croatia is talking about this because 1) no one knows about it - neither would I, if I wasn't following UK based eentrepreneurs on Twitter 2) the digital market is still under-developed, and this new legislation will insure it remains that way. I hope other EU countries will be open to discussing VAT thresholds.

Simon Dunant
Simon Dunant

Also a couple of big things that the HMRC announced at the round table today that small businesses were concerned about are that input tax can be claimed from your EU sales, and you won't have to split your company to file EU VAT MOSS and Nil UK VAT.

If you currently fall under the £81,000 VAT threshold HMRC confirmed today that you can voluntarily register with HMRC for VAT purposes, return NIL VAT due for UK sales, and file EU VAT under the VAT MOSS scheme. If for example 70% of your sales were made to UK customers and 30% to EU customers, you owe HMRC no VAT on the 70% of sales, you owe EU VAT on 30% of EU sales. However you can then go ahead and make a refund claim for 30% of all your business purhases because of the VAT MOSS registration. You can do this in a single company just as you are, you do not need to split your company or start a second company to split UK/EU sales. This is some of the positive news that came out of the round table today. HMRC told us at the round table they would communicate this out shortly.

Elliott Rodgers
Elliott Rodgers

There's a small ray of hope. Doing a NIL VAT in UK and VATMOSS sounds positive.

Igor Brejc
Igor Brejc

Actually, other EU countries DO have VAT thresholds. It's 100,000 EUR in Slovenia, for example.

Ashley Smith
Ashley Smith

As Igor Brejc said it's nonsense to suggest that other countries don't have VAT thresholds. Indeed the French tax offices are actively advising online sellers that they do not need to register or charge VAT as long as they remain below the standard threshold, which is around €90,000 on services I gather.

The current proposals from HMRC will bankrupt many of the smallest traders in this country and destroy future innovation among start ups. We need to shout loudly about this.

Simon Dunant
Simon Dunant

Ashley / Igor Some EU countries don't have a VAT threshold. Netherlands for example have zero threshhold. You have to register from VAT from day one regardless of your turnover. I speak from experience as I ran a business for 5 years in the netherlands when I was an expat there.

simon dunant
simon dunant

KPMG: There is no VAT Threshold in The Netherlands http://www.kpmg.com/global/en/issuesandinsights/articlespublications/vat-gst-essentials/pages/netherlands.aspx

Wayne Neale
Wayne Neale

@ Simon, HMRC are completely out on a limb here with this, real fantasy island stuff. This dies not even remotely fall within UK or EU law. You can't pretend you are registered just to do MOSS on EU sales and then claim VAT. What about, 1. Pre registration VAT 2. EU acquisitions. -VAT status means VAT free goods 3. Deregistration VAT on assets on cessation 4. What costs? Overheads, eg computer costs? 5. Costs incurred in advance of sales - VAT refund? 6. How to differentiate between pretend registration and real one? 7. How to audit 8. Real risk of fraudsters abusing this

There are probably other issues, these are initial thoughts. In all my 27 years in VAT I have never come across anything so half baked and clearly not thought through. I'll say it again, there is simply no provision in VAT to even get code to what they are saying. The threshold option is the only workable solution. The worst thing, and this is where HMRC have, IMO evaded the issue, is that an average micro biz cannot cope with the evidence requirement of MOSS never mind undertake a complex apportionment exercise of costs, invoicing requirements in some countries etc etc. This is actually worse than before. Someone wake me up!

Simon Dunant
Simon Dunant

Because there is no VAT threshhold in certain EU countries (Like NL) it means that no EU member state (not even France) can set a threshold for VAT MOSS as it's an EU directive so if they did they'd be breaking EU law. All 28 countries have to agree to a threshold for any member state to implement it. David Cunningham from UK Treasury is on way to Brussels tomorrow to discuss this with EU to see if there is any way forward on that point. Will take time though even if agreement is made as all 28 states have to agree to a threshold.

Simon Dunant
Simon Dunant

Wayne, just relaying what came from HMRC horses mouth, don't shoot the messenger, ask that directly to HMRC. I was at the meeting and heard it with my own ears. How they implement / communicate remains to become clear. Early days.

Wayne Neale
Wayne Neale

Hi Simon I was shooting HMRC of course. Probably good job I could not make it today. Can't wait to see the explanation. EU countries break EU law all the time (ebooks in France!). I think HMRC can justify because we have a derogation that permits us to relieve small biz.

Simon Dunant
Simon Dunant

Understand Wayne, I'm a small biz too heavily affected here. We're all trying to forge a way ahead and keep a positive mindset during this challenging time. It's important to stay constructive and help each other. All of usat the meeting felt that small / micro businesses had been heard (for the first time) by HMRC and they agreed with a lot of our points and promised to review and and come back with an action plan. HMRC appeared genuinely interested in making moves forward today, definitely felt like it. We have to give it time for them to review what was put forward today at the meeting and return to us. I know it's only 4 weeks away, but we made progress with dialogue today, that has to be celebrated amidst the challenges.

Heather Burns
Heather Burns

The question they will be asking their colleagues today - "Whether any other member states had experienced a similar reaction from micro firms" - presumes that those member states asked those micro firms in the first place. If the UK, which has the most startup-friendly legislation in Europe, completely forgot to do so, what's the chance that other member states thought of sole traders too?

Mark Littlewood
Mark Littlewood

This is a mess. My MP, Julian Huppert, is digital savvy. This has crept up on a lot of people. He is raising it with Osborne and Head of HMRC as matter of urgency. He is a great guy but is being realistic about what can and can;t be done to change the law etc. Copy of letter etc here you can feel entirely free to copy and send to yours. http://thebln.com/2014/12/vatmoss-vatmess-hmrc-and-julian-huppert-mp-update-microbusiness-update/

Virginia Crawford
Virginia Crawford

How are they going to ' Ascertain whether any other member states had experienced a similar reaction from micro firms' when hardly anyone outside the UK seems to know about it in the first place? (And even in the UK most of us micro businesses only found out by complete chance, via social media! Many of our accountants don't even seem to know about it!) I mean, they might not see a reaction because many people in Europe don't know there's anything going on. The kind of publicity the HMRC did wasn't good enough, full stop. Maybe we would've noticed something on the HMRC website, but I certainly didn't. Anyone not tech savvy and doing their tax return on paper rather than online stood no chance. And if the HMRC haven't done a good enough job of publicising this, what kind of efforts did the other EU countries make? Was it effective? Apparently not; people all over the world that I'm in contact with either haven't heard of it or don't believe that it applies to them. The ones who have heard about it, have heard via social media rather then through official channels. Under the circumstances there aren't enough businesses who know about it to expect successful implementation on Jan 1st. Few micro businesses will be prepared, and many of the ones who are aware of the changes will be forced to stop trading because of the difficulties associated with compliance. How can this be implemented until it's publicised properly? In my opinion, the lack of effective publicity needs investigating and should be taken into account in any decision making. How can people prepare for or react to something that they don't know exists?

Simon Dunant
Simon Dunant

@Heather In the Netherlands they have a business registration body called the KVK (Kamer van Koophandel) which is almost like the chamber of commerce, however they issue official government business numbers (not VAT numbers) for sole traders and partnerships. When I worked in NL for 5 years as an expat, they were very good at communicating to sole traders and small businesses because there was a government body that covered the micro businesses and larger businesses alike. We don't have that in the UK, but since NL do, it's likely they communicated this earlier to more people. As I said in my interview in the Financial TImes today, the good thing about this is that a group of people that previously didn't have a voice now have one. Could be a case for government issue of business registration numbers for sole traders and partnerships now, especially if you're B2B or under VAT thresholds.

Heather Burns
Heather Burns

@Simon - that's very interesting, thanks. The lack of coordinated information has been the critical issue, and the lack of decent business organisations has definitely played a role. Enterprise Nation has been the only group which did anything other than issue PR guff. There is one organisation in the UK for the self-employed but it represents high-income high-fliers, not people like you and me. And as a former Chamber of Commerce employee let's just say I know things that could get the whole network shut down. As I asked in a podcast interview about this, where do we (micro-enterprises) go from here? Do we need to form a union? Do we need to form an organisation that would have genuine consultative status and not just be a backslapping club? Because this is going to happen again, and again, and again.

Kimberley Jones
Kimberley Jones

I'm wondering what the next steps are for sole traders/microbiz? It's great to read about the above conversation but where does that leave those of us selling digital products globally that no doubt includes sales in the EU? Do we go ahead and register for VAT MOSS anyway? Or just wait and see if HMRC acknowledge their oversight and lift the deadline/threat of legal implications? Deadline is looming....Thanks.

Emma Jones
Emma Jones

Thanks to all for your comments. By way of update, we are meeting HM Treasury again this coming week to secure the response from government to the requests made and reported in this blog post, and to agree next steps. Will keep you closely updated. Emma

Lynne Macdonald
Lynne Macdonald

I do not sell digital products but I do like to buy them (quilting patterns, sewing patterns etc)! I am British and currently living in France. I have seen nothing about this in blogs and on websites in France. I can find nothing written in French on the internet concerning the implications of this legislation for small businesses in Europe. It would seem to me that people here are blissfully unaware. The discussions in Brussels may not therefore produce any news of a reaction from French traders. Do you have any links with organisations that support small business in France (and perhaps the rest of Europe)?

Annabel Kaye
Annabel Kaye

I am talking to business women in Spain who know nothing about this at all. If so many people in other EU countries know nothing about it the lack of feedback/protest can't necessarily be attributed to the fact they are complying or find it easy to comply.

Annabel Kaye
Annabel Kaye

I am talking to business women in Spain who know nothing about this at all. If so many people in other EU countries know nothing about it the lack of feedback/protest can't necessarily be attributed to the fact they are complying or find it easy to comply.

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