Posted: Fri 28th Nov 2014
Earlier this week, we joined the furore around the #VATMOSS campaign - and discovered a lot of worried digital entrepreneurs, heads in hands.
While some argue that these reforms, which are part of the EU VAT Package ratified in 2008, should only affect a few people in the UK - listen up.
Tom Gatten, founder of big data analysis firm Growth Intelligence suggest the number of those affected is likely to be upwards of 264,000 businesses. His company's analysis earlier this year entitled Growth Intelligence, Google and NIESR Digital Economy Report suggested that the Government underestimates Britain's digital economy by a staggering 40 per cent - because it just doesn't have the right data sets to count.
The solution - HMRC's Mini One Stop Shop scheme (MOSS) - was designed to stop small firms trading digital products from having to register for VAT in 28 countries.
However it will impose VAT registration on all affected firms regardless of their turnover and will make them report separate detailed quarterly UK VAT accounts and EU VAT transactions or face penalties.
Emily Coltman, director of Accounts in English told us this:
"The impending changes to the rules mean that small business owners selling digital services to consumers in the EU will not only have to keep abreast of VAT rates in up to 28 different countries, but also the requirements for VAT invoices in those countries, whether or not they use the proposed MOSS scheme.
"Businesses that are not registered for VAT in the UK will not be able to use the MOSS scheme, so could potentially find themselves either having to register for VAT in the UK, with all the complications that brings, or having to register for VAT in up to 28 different countries and file local returns. This is simply not practical.
"The changes to the rules should not be implemented without a lot more consultation with small business owners, and by 'the changes', I mean not just the MOSS scheme, but the changes to the place of supply rules and the requirement to charge local VAT on services supplied to consumers in the wider EU. Small businesses should be able to continue to charge UK VAT on these services."
So we'd like your help.
We'd like you to send a letter to your local MEP, outlining the implication of these changes and why they should not simply ignore the protests of Britain's smallest firms.
And here's a suggestion as to how you might approach it.
Dear Mr/Ms/title [look up name here]
I am writing to alert you to the implications of the EU VAT Package legislation for Britain's army of digital entrepreneurs.
The legislation was designed to prevent internet giants from avoiding tax, but in fact the impending changes will have a disproportionate effect on the smallest firms trading with the EU.
The rule change will force small businesses, including those currently under the Â£81K VAT turnover threshold, to register for VAT with all the complications and cost that brings, as well as keep abreast of VAT rates in up to 28 countries in order to sell e-books, e-courses and digital products in the EU.
Current estimates suggest this will affect 264,000 early stage businesses in the UK. These are not firms with large accounts departments. These are fledgling companies, some just starting out in the world, many on an upwards trajectory towards growth, but that don't need this sudden and unnecessary complication.
VAT MOSS is a disincentive to supply consumers in other EU countries and moves against the trend towards greater international trade particularly through the internet.
Take London-based interior designer Issy Zinaburg. She 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.
Yet she discovered in an online forum for digital entrepreneurs that as she would be selling digital products to consumers in the UK and outside it (as is the global nature of the web) that she would now have to register for VAT on 1 January 2015.
This will strip away any profit she might have made - and made her life unnecessarily difficult. She's launched a petition you can see here.
I am a member of Enterprise Nation and writing to urge HMRC and the EU to pause and review how this law to fight one problem, may well have created another - and to consider the views of the record number of small UK firms like mine.
I hope you decide to take this as seriously as it's being taken by the small businesses of Britain.