Posted: Tue 25th Nov 2014
Issy Zinaburg is an interior designer who recently set about developing an online course to be able to scale her business and, as a Mum to be, run it around her new family. Ten days ago she found about VAT MOSS, the impending law that comes into effect on 1st January 2015, requiring all businesses selling digital products to consumers in Europe, to register for VAT.
Issy is calling for this introduction to be reviewed and paused and she's gathering thousands of people behind her cause.
New Mum. New tax.
Over the past few months, Issy Zinaburg invested time and money into creating an online course that would enable her to continue running a successful interior design business when her new baby arrives in less than two months.
Disappointed was she to discover in an online forum for digital entrepreneurs that as she would be selling digital products to consumers, in the UK and outside the UK (as is the global nature of the web) that she would have to register for VAT on 1 January 2015 as part of a new law coming into effect called VAT MOSS.
The ICAEW offers a useful outline of VAT MOSS as follows:
A UK business selling 'digital' services (comprising either broadcasting, telecommunication or electronic services) will need to be aware of important VAT changes that are taking effect on 1 January 2015 if it sells these services to non-business customers who are based in the EU:
UK VAT will no longer be charged on these sales - the key issue will be where the customer is based rather than the supplier.
Example - a UK business selling music downloads to private individuals in Ireland will charge and account for Irish VAT on these sales (23%) rather than UK VAT at 20% with effect from 1 January 2015.
The tax collected by a UK business relevant to the different EU countries will usually be paid by submitting a MOSS return to HMRC each calendar quarter. HMRC will then arrange for the tax to be paid to the various tax authorities in each EU country - almost like a VAT clearing system.'
For Issy and thousands of others, this rule will harm her business. She's concerned by that and by the fact that so few businesses know this is around the corner.
Issy has therefore taken action into her own hands and launched a petition which is fast securing signatories and, with a collection of fellow digital entrepreneurs, has unleashed a twitter storm to alert small businesses to the new rule and what's involved.
The key issues around VAT MOSS are:
Cost of compliance
Thousands more businesses will need to hire accountants to file quarterly VAT returns and there would be extra paperwork required with UK businesses having to determine and prove if they are selling to individuals or businesses in the EU, with the determining factor being if the other party can provide a VAT number. In Issy's view 'this is just completely unworkable'
Role of Marketplaces
The move is pushing more small businesses to trade via marketplaces as opposed to selling digital products via their own site, which is ironic when the move is intended to clamp down on the tax practices of the major marketplaces.
On this point, we also spoke to Patricia van der Akker of The Design Trust who has been keeping a close and alarming eye on developments:. She says:
'HMRC says that the online platform or marketplace is responsible for charging the VAT, but the providers aren't doing anything, and many of these marketplaces are outside of the EU anyway. Many UK businesses charge their products in US$ as the American market is so big, and go through an American market place or portal - would they still need to comply? There is a lot of confusion in this area.'
Data collection and retention
Issy also spots a problem with the data requirements of the rule, thinking it works against data protection practices with specific requirements of data needing to be collected and stored or 10 years.
These issues are alarming businesses and the journalists covering the sector including Mike Butcher who stated:
'The new rules are especially onerous for women entrepreneurs, who often start businesses from home, perhaps after starting a family or during their maternity leave. This is the fastest growing sector of the entrepreneurial community.'
So, what's the solution?
In this webinar (at 1 hour and 13 mins) Andrew Webb of HMRC said there could be a case for a review and pause before the rule comes into place.
This is exactly what Issy is suggesting.
Time to pause and time to review.
'It would be good to give businesses more time to prepare and, indeed, to question the impact on the smallest of companies. Depending on the results of that review, the outcome should be clearly communicated so small businesses know exactly how and when they have to comply.'
Sign the petition and let us know if this is something that impacts you.