A small group of us had a very important meeting on Thursday – and thank you so much to Emma Jones of Enterprise Nation for helping it to happen.
We met with Jim Harra (Director General of HMRC Business Tax), Ian Stewart (Director of Indirect Tax, HMRC), Mike Cunningham (Senior Policy Advisor, VAT & Excise at HM Treasury) and David Gauke MP (Financial Secretary to the Treasury), as well as a member of the #10 Policy Unit, a representative of Vince Cable’s office and many other senior officials.
Your views were heard at the highest level.
Updates From Our Meeting With HMRC, HM Treasury and A Minster On 4th December 2014 – And How You Can Help With The Next Steps
We are still waiting for official minutes from the meeting, but in the meantime, I know that many of you are patiently waiting for an update. So this article includes some of the key points that were discussed. If any of the attendees spot anything that I have mis-remembered, please let me know and I’ll update!
I really want to reassure you that your voices have been heard, and the very senior decision-makers in that room do now understand the magnitude of the challenges we’re all facing. We believe that they are committed to finding practical, workable solutions.
The details on how to join VAT-MOSS without losing your UK VAT threshold will be out next week. From the initial comments it sounds pretty sensible and workable. We have asked them to make sure that the guide is written in terms that lay people can understand – without having to hire an accountant.
The HMRC / Treasury / Minister were genuinely surprised by the depth of feeling about the new EU VAT regulations among the micro business community. We genuinely believe they hadn’t understood how many of us there are and how big the administrative and human cost would be of implementing the legislation. They are committed to taking action and want to make sure that it doesn’t force any of us to close our doors.
But we need to keep campaigning.
In the meantime, PLEASE keep writing to your MP and your MEPs. It’s especially important for anyone in the non-UK EU to write to their MEPs, because we need to raise politicians’ awareness outside of the UK, for them to want to address this problem. The UK can’t change European VAT law on its own. Thank you!
Our Primary Aims
- A de minimis level (ideally the £81,000 UK VAT threshold) below which businesses 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.
- Micro businesses cannot reasonably obtain and check the 3 pieces of ‘place of supply’ evidence during the purchase process. We therefore ask for an exemption allowing micro businesses to be able to use just the customer’s self-declared address as proof, otherwise we will either have to cease trading or break the law.
[divider line_type=”No Line” custom_height=”11″]
Updates From HMRC & HM Treasury
- The details on how to submit VAT-MOSS returns without losing your UK VAT exemption (currently £81k) should be out next week (w/c 8th December). Jim Harra (Director General of Business Tax at HMRC) made it really clear that they had had two options – one that was easy for them, but hard for us, and one that was harder for them, but easier for us. And they chose the latter. They really want to remove the headache from this process and we are hopeful that next week’s clarification will be positive news.
- You will be able to reclaim your Input Tax (i.e. the VAT on things you have to buy to run your business) based on the percentage of your sales in the non-UK EU, if you’re registered for VAT-MOSS. In other words, if 30% of your sales go to non-UK EU, then you’ll be able to reclaim 30% of your input tax. Hopefully details on the ‘how to’ will be out next week.
- You no longer have to pre-emptively register for VAT-MOSS in advance of your first post-January-1st non-UK EU sale. You will now be able to register up to the 10th day of the following month. Hopefully this will be confirmed in next week’s HMRC document.
- It was confirmed by HMRC that the intention is to roll these VAT changes out to cover all products (not just digital services) in the future – perhaps as soon as 2016. So if it doesn’t affect your business yet, it will then. The rules and processes that are set now, for digital sales, are those that will apply for all sales in the future. That is why it is ESSENTIAL that we all join in with the campaigning.
[divider line_type=”No Line” custom_height=”11″]
[divider line_type=”No Line” custom_height=”11″]
[divider line_type=”No Line” custom_height=”11″]
Other Points We Raised
- It’s not that micro businesses don’t want to comply with the legislation, it’s that we simply can’t, without either using 3rd party platforms (who take a big cut) or upgrading to highly techy shopping cart systems. We cannot reasonably capture the required 3 pieces of data for proof of place of supply – we simply don’t get given it by the micro-business-level payment processors. So we are faced with the choice of either closing our doors or breaking the law, after 1st January.
- Many of the 3rd party platforms, who are legally required to handle the EU VAT accounting on our behalf, have only recently become aware of the changes and will not be ready in time.
- The third party platform option often isn’t as attractive as it sounds. Not only do some of them take between 30% and 70% of the sale as commission, but they will also have to levy UK VAT on the sale, if you sell within the UK, meaning you effectively lose your UK VAT exemption threshold. The new rules, intended to prevent off-shoring of tax by large multinational resellers (no names mentioned!) could actually end up driving more people to only be able to sell via those companies.
- We have been hearing rumours that SOME countries in the EU are allowing businesses below their local VAT threshold to be exempt from the new EU VAT rules. We have asked HMRC and HM Treasury to investigate this as a matter of urgency.
- We cited the “Great Olive Oil Crisis of 2013” as setting a precedent where regulations were revisited when it became clear that they would privilege large companies over small businesses because smallest enterprises simply couldn’t afford to comply.
- Corporate levels of regulation are accidentally being applied to micro biz on the proof of place of supply. HMRC had a genuine belief that the 3 pieces of data were easy for us to collect and that if we couldn’t collect them, third party platforms and payment processors would do it all for us.
After Thursday’s meeting they know totally understand that this is not the case and that’s why we need them to go full-steam-ahead on the ‘self-declared address’ option.
They can see that the level of errors in VAT allocation for member states would be minuscule, compared to the cost of people going out of business because they can’t comply. Hopefully they will successfully lobby and there will be a victory for common sense. - The cost of implementing this legislation for micro businesses is much higher than just the administrative costs. Rosie Slosek, who runs One Man Band Accounting, explained to the Treasury that many of the people who are running micro businesses are using them to stay off benefits – or to be able to work whilst also having young children – or whilst caring for dependent relatives. The potential social cost if these businesses close is much higher than the potential lost VAT revenue.
- We also talked about the fact that most micro biz use fixed prices at checkout and won’t know how much VAT they should be charging until AFTER the consumer has clicked the ‘buy’ button. So you don’t know if the VAT should be 0% (UK exemption) or 27% (Hungary). You can’t add the VAT on after they have started the purchase process, so you would effectively have to accept a whopping 27% cut on your income from a Hungarian sale.
- We helped the attendees understand that, whilst some micro businesses are brilliant at the techy stuff, most feel proud if they manage to embed a PayPal ‘Buy Now’ button into their website – so just imagine how they will react to being told to handle APIs to gather and decode IP addresses.
- We raised the issue of conforming with Data Protection legislation and asked the HMRC to investigate whether we would need to register with each of the 28 member states, in order to retain the required proof of place of supply for the requisite 10 years.
[divider line_type=”No Line” custom_height=”11″]
[divider line_type=”No Line” custom_height=”11″]
[divider line_type=”No Line” custom_height=”11″]
[divider line_type=”No Line” custom_height=”11″]
[divider line_type=”No Line” custom_height=”11″]
[divider line_type=”No Line” custom_height=”11″]
[divider line_type=”No Line” custom_height=”11″]
[divider line_type=”No Line” custom_height=”11″]
[divider line_type=”No Line” custom_height=”11″]
Things that might surprise you…
- The teams at HMRC and the Treasury didn’t realise quite how many micro businesses will be affected by these new rules. Their impact assessment estimated that around 40,000 businesses, UK-wide, would need to register for VAT-MOSS. An independent estimate from E-Nation’s consultant puts this figure at nearer 250,000.
- At the time of the meeting, Andrew Webb (HMRC) confirmed that only about 400 firms have registered for VAT-MOSS so far… With less than 4 weeks to go.
- In the UK, we’re fortunate in having the ‘Mini One-Stop Shop’ (MOSS) to help us with the new regs. Lots of EU countries aren’t as lucky as us and don’t get a MOSS system so will have to register with and pay VAT to each member state individually.
- If one of the other member states ‘catches’ you selling goods to their state without sending over the VAT, for a ‘first time offender’, the correspondence (and penalties) will be handled via HMRC, rather than you having to become fluent in the accounting terms of another language.
- 3rd party platforms (i.e. resellers who handle the sale and the e-delivery) will be liable for accounting for the EU VAT on your behalf. BUT many of these companies are tiny – often with only a handful of UK / EU staff – and many of them only found out about the new legislation a couple of weeks ago, with the ‘Twitter storm’. It’s vital that we keep up the pressure for an exemption for micro businesses, because the 3rd parties won’t be able to meet the January 1st deadline.
- Although you might think that there has been no publicity about the EU VAT changes, HMRC has been travelling around the UK doing roadshows and seminars for over 18 months. They have had consultation groups and sent out mailings.
BUT they had so far only targeted companies that were already VAT registered, because they genuinely thought this would include the vast majority of businesses affected by the rules.
They now have a clear understanding of how many of us they missed.
[divider line_type=”No Line” custom_height=”11″]
[divider line_type=”No Line” custom_height=”11″]
[divider line_type=”No Line” custom_height=”11″]
[divider line_type=”No Line” custom_height=”11″]
[divider line_type=”No Line” custom_height=”11″]
What They Need From Us
We urgently need evidence that other countries are having problems with implementation, too, otherwise it’s 27:1 in the EU meeting room, ganging up on the UK.
Most other member states are reporting no issues with the implementation of the legislation.
HMRC and HM Treasury urgently need information of what other countries are doing to help their smallest businesses on this – and also how widely it is being communicated. It was generally felt that there is an unusually high level of awareness in the UK, in no small part due to the huge efforts of everyone who took part in the social media campaigns and press lobbying in the past two weeks (thank you!)
That’s why we NEED URGENTLY EVERYONE in this group who is non-UK EU to write to your MEPs and your equivalent of HMRC to (1) explain specifically how the legislation is a problem for you and (2) to allow companies under a certain threshold to be exempt from it. PLEASE
We need to provide them with the evidence they need. As soon as we can.
Our Next Steps
We will get a de-brief from Mike Cunningham (Treasury) on his EU fiscal attaches meeting last week, this coming Wednesday (10th December). He was going to raise our two appeal points during the meeting.
We are also actively collecting case studies from across Europe of how the new rules will impact your business. Please let me know via the comments if you’d like to submit a case study.
We are also launching a survey to find out, quantitatively, how the legislation will impact micro businesses. I’ll let you have the link to it as soon as it’s ready (early next week).
For now, PLEASE keep writing to your MP / MEPs / regulatory bodies / government equivalent of HMRC. In a world where we’re hearing that ‘no one is complaining’, we need LOTS of loud voices NOW. Especially given that timing is so tight. Thank you!Thank you so much for your support! Everything you can do to help will make a difference. xx Clare
Agree with most of what is said here but not the comment that lots of countries in the EU don’t have a MOSS system. It has always been a requirement of the legislation that each member state have its own MOSS. This is the case and the MOSS registrations of each of the 28 countries were exchanged from January.
I’ve seen numerous mentions of 2016 VAT changes for physical online goods sales but no citation from an official source. Is it hearsay or is a government source available?
We were told it by the DG of Business Tax, HMRC, face-to-face during the meeting. There are also mentions of it in various EU-wide steering documents. However whether, given the current mess, that timing is kept to or not remains to be seen!
My feeling is that this piece of legislation, like much of the BS which comes out of Brussels, has been poorly thought out. Moreover the tax authorities in many countries have seen their resources cut back with austerity and simply dont have the person power to police this. The EU is awash with bureaucracy and corruption and I have no intention of being an unpaid tax collector for an organization I despise.
Thank you for the in-depth post. Did the de-brief happen on 10th December and where can I find more information? Thanks.
You’re welcome Paul.
We have now set up a stand-alone website for the EU VAT updates – here’s where you can find out more about what has happened since December 4th – it has been really busy: http://www.euvataction.org/updates/
Hi. Thanks for all the time you are putting in.
One possibly useful piece of feedback: I checked all our sales in November and we had one £5 sale to Ireland and one £5 sale to Germany all the others were to the UK or outside the EU. So a lot of work and they would gain less than £1 in two countries.
Re aim for a threshold of £81,000: It may be easiest to get the EU to include Digital Downloads in the Distance Selling category which would give a 35,000euros threshold to each EU country!
Details I found at: http://www.vatlive.com/eu-vat-rules/distance-selling-eu-vat-thresholds/
Spot on, Chris. That’s our fall-back plan. 🙂
Thank you Clare for giving us such a succinct post about what’s happening and for taking action. It’s frightening that the UK Government have such a slight grasp on small businesses. I wrote to my MP on 1st December (still waiting to receive a reply), as one of his parliamentary interests is in new businesses. I suggested to him that small digital businesses contributed hugely to the economy, and that we need to nurture them, not strangle them with red tape. I’m particularly pleased that people who would otherwise be on benefits are mentioned as this was also one of the key points I made as it’s so important and so frequently overlooked in business.
Hi there,
I’m a french knitting designer. Robynn (on Ravelry) tells me to to leave a comment here about the application of this VATMOSS in France.
I’m an “autoentrepreneur”, it’s a special tax status which allows me to not deal with VAT, as I’m below the treshold (turnover below 32900€ for services sales, per year). If you want to have more information about this tax status, you can see here (in french):
http://www.lautoentrepreneur.fr/images/2644-PointSur-AE_0814.pdf and some Q/A: http://www.lautoentrepreneur.fr/questions_reponses.htm
A few days ago, I sent an email to my tax office. They answered that, as I’m below the treshold, this new VAT legislation doesn’t change anything for me. I will continue to send my knitting patterns without declaring and paying VAT. You can see the email there (in french): http://www.heletzel.fr/wp-content/uploads/2014/12/tax-office.png
As I was surprised because it’s a big difference with the UK situation, yersterday, I tried to register myself on the french MOSS (I already have a VAT number because of the European Services Declaration (since 2010 for B2B services, without VAT declaration: http://www.douane.gouv.fr/articles/a10899-la-declaration-europeenne-de-services-des)) and the website tells me that I can’t due to my tax status. You can see a screenshot here: http://www.heletzel.fr/wp-content/uploads/2014/12/FrenchMOSS.png
So, next year, I will continue to sell digital products without declaring and paying VAT, as I do to date.
If this could help… 🙂
Hel et Zel, Thank you for taking the time to write. That’s very useful I think to see that France is apparently allowing you exemption and actually not allowing you to register. I hope this crazy situation is sorted out. There are so many of us tiny businesses that stand to lose out.
Amanda
I wrote to my MP but I took another angle i.e. that of the buyer. Well just about everyone with a computer could be a buyer I compared the privacy campaigners who forced Facebook to develop a European datacentre on the grounds of data protection to the tax people who said blow your security we just want the information we need to collect tax from you. I suggested that if someone stole my credit card number as a result it would be the politicians to blame for putting my information at risk. I reminded her that after 10 years it might be difficult to access electronic storage as things will have changed using the example of floppy disks. Then of course how many businesses do you know that were trading online 10 years ago are still trading? Once they go out of business what happens to the information they stored about me.
I ran out of steam after 3 pages and then added the link for the Facebook group for her and her team to read the sellers perspective.
Thank you for taking this to the corridors of power and cluing them in for us. Knowing you and others have been working on getting us all heard has really lowered my stress level. It’s nice to know the UK government has been trying to inform those who it assumed would be affected, but why wasn’t this in the news starting a year ago so there would be time to iron out problems? I wouldn’t even know about any of it if my husband hadn’t spotted it several weeks ago (and he’s fairly clued up). In an age of mass media and an obvious explosion of micro businesses I’m staggered their research was so way off. Hopefully they’ll get it sorted soon and the changes put into concrete form. Thank you again!
One thing I can’t understand is that there is apparently a distance selling VAT threshold already in place (€35000 seems to be the cut off):
http://www.vatlive.com/eu-vat-rules/distance-selling-eu-vat-thresholds/
Presumably this threshold will remain in place when the new rules are rolled out for non-digital? Or not?
I can’t see why these thresholds don’t simply apply to digital as well as non-digital. What’s the difference? Why treat digital differently?
Excellent point, Chris.
That’s our fall-back position under our #1 request – if you can’t give us exemptions to the UK VAT threshold (I think it’s about the highest in Europe) then at least give us the 35,000 Euro distance selling threshold.
Might be more palatable for the politicians and, whilst it wouldn’t help everyone, it would remove this crazy burden from the smallest businesses who are least able to handle it.
I know a lot of other EU and non-EU businesses think we Brits are getting our knickers in a twist over nothing…either they brush it off assuming they’re so small it doesn’t affect them, they don’t care and will chance it, or have the ‘let them try get me’ attitude. It will be interesting to see how this develops!
Regarding 3rd party platforms with few staff here in the UK – try having no staff or relying on the good nature and voluntary work of the other people who are on your platform: everyone working together for the benefit of the whole store (which I love!) Some of us ‘platforms’ are doing it all with literally ‘little or no staff’ versus some ‘platforms’ who might be considered small here in the UK but have HQs elsewhere who can afford to employ the Programmers, Accountants and Consultants. Two entirely different setups, same rules and requirements. We need a threshold.
I’m a micro business situated in the Netherlands. While I am already VAT registered , the added administrative burden as well as the issues with collecting the relevant 3 pieces of data for locating the place of supply and the data protection issues for storing the relevant information for 10 years are forcing me to transfer to a third party sales platform as a reseller for my digital products. This legislation does not put everyone on an even footing and actually puts micro businesses like myself at a real disadvantage.
Clare, did you see that Vince Cable has finally replied to the change.org petition?
http://www.change.org/p/vince-cable-mp-uphold-the-vat-exemption-threshold-for-businesses-supplying-digital-products/responses/25596
What’s incredible is that his response indicates that he has not communicated with his own team about Friday’s meeting – either that or he was unaware of it to begin with.
Remarkable times.
Hi Heather – yes! Did you see our response to everyone? Isabel sent it to all 10,000 signatories.
Have spent a large chunk of this afternoon talking to his Press Office and we are hoping to get a face-to-face with him very soon, so we can get him up-to-speed, which he clearly isn’t, or he wouldn’t have written that response. As you say, remarkable times!
Hi Clare,
All sounds positive – is there a template letter that we can use to contact our MP/MEPs?
These regulations will adversely affect micro sellers based in any country, as long a EU buyer decides to purchase from us. The regulation that was aimed to get all EU ducks in a row, it is going to kill all the ducks that are living outside it. In the era of globalization they should have understood that one country does now affects all other countries.
Thank you for putting this into words which are easy to understand. As a small business just embarking on supplying digital tutorials this seems to be an end before the start. Will be writing to my MP to add my voice and will encourage others to do so also
I’ve been VAT registered before, so if I have to register again with the added complications and potential risk of having to deal with tax authorities in 28 countries I will shut down my business on the 1st of January. Anything less than the full £81K threshold enjoyed by other businesses in the UK is unacceptable.
Clare and everyone else involved a huge thanks for pushing this forward
Clare,
As non-EU businesses are to be affected by these laws as well, with zero knowledge in our own countries and zero support, this is invaluable information. Many of us have no clue how to manage VAT period, as we’ve never had to. Is there anything we can be doing to support providing information? Any and all attempts to contact HMRC for even the most basic information is falling on deaf ears. Come January 1st, I have grave concerns…
Letter already written to my MP and the system tells me it’s been READ!
Well done everybody involved, for making this representation happen and for the results you’ve achieved so far!
The issue with this is that I have no idea what the equivalent of HMRC is in my country. The Tax Administration?
I’ve recently gone through registering my business, and most of the services I had to deal with were painfully inept and difficult to get information from. I don’t think they would take my inquiry seriously at all. I feel I really can’t help with this because our system is set up to be so frustratingly unhelpful. I hoped things would improve now that we’re a part of EU, but they hadn’t.
I’m sorry we’re putting all this on UK people. I hope businesses from other decent countries will join in.
Nela, if you can write up your experience and your business using a lot of number about how this will affect you (and how much money you may save your government if they DID help you – you may receive state aid/care for relatives etc) then we can pass it onto someone who can use it to prove that businesses like yours do exist and there is a real impact in a way that your government cares about. Also try writing to your MEP and contacting (in public) your national press. Is there a hashtag to coordinate social media for your country? If not, create one and tell us what it is so we can post in it groups 🙂
Thanks so much for keeping on top of this with HMRC and posting the meeting outcomes! I would LOVE to make my thoughts known to the appropriate officials, but I don’t live in the EU. I live in Switzerland, and have been following this topic in English because I’m originally American. I don’t know who (if anyone) in the US or Switzerland is doing anything in an official capacity on this important topic, let alone potentially act an advocate for small businesses. To whom should those of us OUTSIDE THE EU write to register their concerns? It affects us as much as EU micro businesses, but we have NO representation at all on this. As a non-UK business, I’m not even sure I CAN register for a UK VAT number in order to register for UK-VATMOSS. No way would I try to register for any other country’s VATMOSS, simply for language reasons.
I suspect the reason the other (non-English-speaking) member states are not getting complaints and frantic questions is simply because the word has NOT gone around successfully to micro businesses in those economies. I found out about this whole thing from the Etsy forums, which is conducted 99.9% in English, as are many (most?) sites and platforms run by and catering to micro business. Do micro businesses have in, say, Poland or Luxembourg, have comparable resources and news outlets to stay on top of such important topics?
Beth, I;d try asking around who you know for who has contacts to make a difference, press, political, finance, you’d be surprised who people know. Once the US also really wakes up to this they can put on big pressure. As a concerned US citizen etc…. The big membership sites and most WordPress themes, plugins etc are American based and they’re all affected, and most are independent and small/micro/damn tiny businesses who have a huge global impact in allowing millions to trade.
Thank you so much Clare and everyone else at the meeting.
Very clear and concise notes.
I can see some light at the end of the tunnel now.
Thank you for writing this in an easy to understand way, and for all the effort you have put into campaigning and publicity on this subject. I was totally despairing and sure I would have to eventually close my little business when this was rolled out to include physical products too. Now I’m hopeful that I will be able to continue.
Clare, well done for compiling all our notes and producing such a clear summary…. so useful while we are still waiting for the official minutes. 🙂