New EU VAT rules threaten to kill UK micro firms

The EU’s new VAT MOSS rule, which is due to come into force on January 1, will create a #VATMESS and strangle innovation, say the UK’s small business owners …
“In one fell swoop, they’re stifling innovation and cross border trade, and forcing people to close their businesses.”

By Rebecca Burn-Callander, Enterprise Editor, The Telegraph Business Club
26 Nov 2014

Small businesses trading online are up in arms about a new EU regulation, which states that from 1 January 2015, VAT on digital products will be chargeable in the place of purchase rather than place of supply in the EU.

The regulatory tweak – known as #VATMOSS – is being introduced to stop multinational corporations that trade online – such as Amazon or Google – from diverting all their European sales through low-VAT countries.

However, small business owners claim that #VATMOSS is likely to hurt many UK micro firms selling digital services, including: ebooks, e-courses, recorded training videos, music and audio downloads.

After January 1, whenever an ebook or pdf is sold to a consumer in the EU (digital services for businesses are not covered by the new arrangement), the seller is automatically liable for VAT MOSS and must therefore also waive their UK “de minimis” threshold – and apply VAT to everything they sell, not just the digital services.

The new law will affect thousands of sole traders. These companies have two options. They they can register for VAT in every EU member state where they have customers, which could be burdensome but does mean they can take advantage of the domestic threshold for their UK sales. Or they can set up a ‘Mini One Stop Shop’ (hence, “VAT MOSS”) by registering for VAT in the UK. This then funnels the VAT payments to the rest of the EU states.

This is complex as the firms will need to split their business between sales to EU customers and UK customers to ensure that they only pay VAT on the supplies to customers in other member states and do not pay VAT on their domestic supplies.

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