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.
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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.
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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.
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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.
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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