One of the things I have noticed during the last few weeks, from the number of people who have written to their MP raising the issue of the new EU VAT rules on cross-border digital product sales, is that all seem to be getting a pretty much standard template letter back. The letter states that the changes are good for the UK and will help provide a level playing field for businesses within Europe.
That, you might think, is a GOOD THING, and I'd agree, except that it isn't true! Let me put it another way: "How does a sole trader whose cross-border sales may total a few hundred pounds a year effectively compete with an internet giant?"
Let me explain...
Sole trader:
Before the change... works from home, does accounts on own computer using spreadsheet software and files an annual self employed tax return. Has a website built using either an open source or a commercial install-it-yourself website/shopping cart and uses PayPal as a payment handler. Dead simple, easy to manage.
After the change... works from home, does accounts on own computer using spreadsheet
software and files an annual self employed tax return. Has a website
built using either an open source or a commercial install-it-yourself
website/shopping cart and uses PayPal as a payment handler.Has had to register for VAT MOSS to account for VAT on cross-border sales. Has had to figure out if his/her existing website/shopping cart software can handle the new requirements of determining which country a potential buyer is from by producing 2 pieces of evidence from the list of those acceptable and displaying the price including the relevant VAT rate for the potential buyer's country, and then input all the details required to show 75 different rates of VAT covering the 28 countries of the EU, and then keep all the transaction data safe for a minimum 10 years from the date of sale. Not so easy now is it?
Internet giant:
Before the change... employs a whole army of people to provide a 3rd party marketplace sales platform, employs accountants and tax advisors to ensure they are using the system to their best advantage and are compliant with the requirements. Has the financial resources to provide a complex system for establishing the location of the buyer, calculating and charging VAT on sales based on that location, and to handle all the accounting for and payment of said VAT to each EU country afterwards. Has the resources to ensure the safe and secure retention of the sales data for the required minimum of 10 years.
After the change... employs a whole army of people to provide a 3rd party marketplace sales
platform, employs accountants and tax advisors to ensure they are using
the system to their best advantage and are compliant with the
requirements. Has the financial resources to provide a complex system
for establishing the location of the buyer, calculating and charging VAT
on sales based on that location, and to handle all the accounting for
and payment of said VAT to each EU country afterwards. Has the resources
to ensure the safe and secure retention of the sales data for the
required minimum of 10 years. Did you see any difference?
How is that a level playing field???
Very nice article Anne, I would add this to the Internet Giant scenarios:
ReplyDeleteBefore the change... was able to set up an office in countries like Luxembourg and therefore benefit from being able to charge a lower rate of VAT to their customers.
After the change... able to benefit from the fact that the EU VAT laws are designed to drive the small independents into their arms! :(