New EU VAT Digital Selling Law Change

Tax may be a boring subject of conversation, however up until last month I was fully unaware that there were new law changes coming in to effect that would have an impact on how I run my business. It’s the EU VAT broadcasting, telecommunications and e-services rule changes that come in to effect on 1st January 2015. It’s not been widely broadcasted, I haven’t seen anything in the news about it, I happened to come across a forum post of another small handmade business discussing this issue.

Previously businesses had to deal with VAT (as appropriate) in the country where they are based for all sales they receive. The new changes mean that the VAT needs to be dealt with according to the EU country that the customer is based in, for broadcasting, telecommunications and e-services. Thereby, having to deal with multiple VAT rates and paying mulitple countries taxes when selling to customers within the EU.

My understanding was that these new rules were meant to deal with big major businesses setting up their base of operations in a country with a lower VAT rate, and therefore having an unfair advantage over smaller companies based in other EU countries with a higher VAT rate. Whilst many countries have EU VAT thresholds, like the UK (UK VAT thresholds) many EU countries have a nil threshold for a business with no fixed establishment in their country. Therefore, businesses will have to deal with all of the various EU VATs if they wish to sell within the EU.

Businesses can register individually with each EU country they wish to sell to, or if you’re based in the UK, you can use VAT MOSS, which is a one stop shop to allow easier dealing of VAT across the EU. However, in order to use this MOSS system you have to register for VAT, even if you fall well below the UK VAT threshold like myself. This would involve quarterly VAT accounting and payment of any VAT owed, plus appropriate record keeping and VAT invoicing etc.

As a very small business, it’s not in my business’s interest to register for VAT within the UK. To do so, I would have to pay an accountant in order to make sure all the appropriate paperwork and accounting is done correctly to meet the VAT rules. Whilst my business is profitable, and I’m working on building my business etc, there isn’t enough profit to employ somebody else out of the current profits. This will be the case of most “micro” businesses (as I’ve heard us called). Therefore, the impact that this new EU VAT rules have, is that I will potentially have to stop selling my digital sales (PDF tutorials). This is a hindrance and is limiting the potential of not only myself but other micro businesses who are forced to make the same decision that I have. When businesses are having to limit what they sell, that’s not good for customers either.

There is a UK petition that’s been put together on this very subject, it’s calling for Vince Cable to intervene and uphold the existing VAT Exemption Threshold for businesses supplying digital products. Therefore if you are affected by this, whether as a business or as a customer, please do sign: UK petition

** DISCLAIMER: Please note that everything written here is my own personal view. If you are a business affected by this law change, do get appropriate advice from a professional or the HMRC.