News of the VAT laws that will affect micro-businesses trading in the EU sparked a huge online reaction this week. A “Twitter storm” targeting HMRC registered around 20,000 tweets using the hashtag #VATMOSS, and our story provoked a strong reaction, both in the comments section and on social media.
HMRC is running a Twitter Q&A on VATMOSS from 3.30pm- 5pm today, prompting some business owners to ask why it has been planned during school run time.
Here’s a roundup of some of your reactions to the story:
Many business owners say they will be forced to stop trading or will be seriously affected when the laws come into force.
The VAT MOSS scheme requires businesses to submit quarterly calendar returns and VAT payments to HMRC.
Would it be worth the expense of setting up a company? Not only would you then have to do quarterly VAT returns, you'd also have real time PAYE to deal with. You'd need an accountant and would cost you a lot in fees - quite probably more than most sole traders would actually be making.
According to the HMRC website, the changes could affect around 34,000 UK SMEs – a sticking point with commenters.
HMRC is massively underestimating the number of small businesses that will be affected, and downplaying the difficulties that this will cause.
The number one problem with the new rules is that they have been created by people with no awareness or understanding of small businesses (actually small, with one or a handful of people), or of how trade happens on the internet.
For instance, people throw around this idea that you can restrict sales to people in certain countries. But they do not address the practicalities of achieving that on a public web page, nor clarify what the new rules will count as reasonable steps to ensure that happens. What if one sale from an EU country goes through on a webstore? Does that make you liable for VAT on all business activity?
HMRC and the EU have not provided clear information about what is covered - what exactly are e-services? I think I know from digging in EU guidance, but... Nor have they set out practical steps to enable small businesses to comply in a realistically achievable way, or alter their activities to avoid falling under the new rules.
And they certainly haven't done a good job at informing people. There have been 10,000 tweets protesting about this in the past hour, and a lot of that anger and frustration is that people feel ambushed when they find out about this with just a few weeks to go.
Business owners also took issue with the implication that most micro-businesses trade through a third party platform or marketplace.
"HMRC says that most micro-businesses, such as developers of apps or digital downloads, trade through a third party platform or marketplace" - these assumptions are wrong, wrong, wrong. No law should be brought in based on these sweeping generalisations and assumptions.
I'm a micro-business owner and I want to sell PDFs and video content to my clients. The reasons for this are two-fold: as a self-employed person I obviously don't get sick pay or annual leave so selling something I've created will bring in a small passive income to supplement my regular income.
Secondly, those who can't afford my direct one-to-one services can get a cheaper alternative which will help them with their own businesses.
We are a supportive, thriving community and have helped to keep this economy afloat so stop penalising us. This so-called 'small' administrative burden is crippling to micro-businesses and will shut doors to European trade.
It is clear HMRC have wasted a lot of taxpayer money creating an online system they now want to push at all costs, regardless of the facts.
The comments from HMRC make me furious, saying us small businesses are ok because we sell via third parties. I don't !! I built my own website as I'm sure many people have and I sell through that directly. These changes effectively put me out of business in one foul swoop. They also haven't considered third parties where I am still responsible as I take payment directly, as not all market-places deal with the customer, Ravelry case example.
I'm also annoyed that they think they have informed everyone well enough, I can't afford an accountant as I don't even earn enough to reach the tax threshold so I found out a week ago via my husband who just happened to read a post from someone about this! They have completely ignored the individual entrepreneurs and the stay-at-home mums who barely understand income tax, let alone all this technical VAT jargon.
My options are to lose money by making Amazon or Etsy richer and sell through them, ban selling to people in the EU which is impossible as even blocking IPs isn't fool proof and my website expertise is limited as I use free website software, and even then it doesn't account for customers on holiday, or lastly close up shop or make everything free.
Supporting small businesses my ....
The implications of this are ridiculous, and clearly have not been thought through at all.
1. Data compliance poses an immediate problem. Sellers are required to collect two separate proofs of customer address, and store them for 10 years. *How* to do this is anybody's guess, especially as Paypal addresses are frequently out of date, IP addresses can be disguised, etc.
2. A sole trader is not able to "separate the cross-body business from domestic business". Many micro-enterprises are people working from home, with more than one string to their bow, eg providing design services as well as selling pdf downloads. Now they will have to register for, charge and pay VAT on all their earnings, just because they are not able to or do not wish to block EU customers. In practice this could mean their prices on other services become unacceptable to clients, forcing them to cease selling downloads entirely. This could be utterly crushing to many, many traders. It is likely to disproportionately affect people with limited employment options (eg those with caring responsibilities, disabilities etc) who have been self-employed by necessity. And this is the fall-out from a move to target Amazon et al, who one imagines will carry on just fine.
3. Even HMRC doesn't know what is required. Questions such as whether the ruling will apply to pdfs emailed manually, rather than automated downloads, have met with confident but utterly conflicting answers when posed by different people on different days. With this level of confusion, how is the average micro entrepreneur supposed to know what to do?
A reasonable per-country threshold would solve many problems – it's utterly baffling why this was never introduced in the first place.
There were also suggestions that the new laws would put UK businesses off trading in the EU.
The whole point of digital sales is that they are global. How can you possibly restrict sales if you are just running some little online shop? And that's even leaving aside the fact that it is blatantly unfair and stupid to make us even try.
So - in a stroke, they have rendered impossible any digital activity that is not conducted through the big channels, who will of course be able to impose their policies and censorships how they like as usual - unless you go through the insanely complicated process of registering for VAT and MOSS. That's a few of my business plans down the drain for a start. This is - utterly obscenely ridiculous. I am almost incoherent with fury right now and really don't know what to say . . . at least that is publishable here.
This is utterly shocking and will limit the ability of the EU to compete with the US. I'm fairly pro-EU, but "solutions" like this are going to put off many small businesses from selling online, or selling into the EU.
VAT is a pretty complex topic if you are dealing with a single country framework, but to expose the complexity of multiple different VAT regimes at a range of different rates to small businesses beggars belief! On top of which, the need to obtain and store 10 years worth of evidence... really, is this the best the top minds in Europe could come up with?
The obvious solution for a new small business selling wholly online is to incorporate outside the EU, ideally in a tax haven and let them try and enforce the law on your then!
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Maybe I'm ignorant, but this is the first I've heard of these new rules. I'm afraid I'm going to simply have to stop selling digital products in the EU. Too much admin for too little return otherwise. Crazy nonsense.