And the EU still doesn't get it!

I've just been listening to today's Money Box programme on BBC Radio 4, where Sarah Paine, a UK seller of digital cross-stitch patterns, explained the problems that the new #EU #VAT rules for digital cross-border sales have given her. I entirely sympathise with Sarah - she, like me and many thousands of others across the EU, is a victim of the "unforeseen consequences" as the EU puts it, of the 2015 #VAT rules changes - an issue which the EU VAT ACTION GROUP is campaigning to have amended.

The EU just don't get it! 

I was hugely disappointed in the response to Sarah's concerns that was given by the EU spokesperson, Vanessa Mock, Ms Mock said that no-one had objected before the new rules were brought in despite countries having every opportunity to do so  (she made no mention of how long ago that was and how the internet marketplace has changed in the intervening 6 years) and the statement that there is a "problem with the UK" thus ignoring the fact that sellers in other EU countries are also adversely affected by this (but have not yet been as vocal as we in the UK are, perhaps!)

Are we waving? No, we are drowning! 

The EU, said Ms Mock, will begin a public consultation in September 2015 to see what can be done to put things right. She did not say what EU small digital businesses are meant to do in the intervening months...  are we waving? no, we are drowning!

We have to somehow get the message across that it is not just the UK having a moan at Europe!

That EU people keep spouting forth that "you had ample chance to comment and didn't" totally ignores the fact that the EU is speaking to the UK govt. who DO NOT tell UK residents what is in the pipeline so we, as end users, do not have the chance to comment, or point out where there will be problems or insurmountable difficulties in complying with the new requirements.

How do we get our points of view across to the EU mandarins?

This is one of the big problems with applying EU rules to the UK... the lack of consultation and the lack of feedback between UK citizens and the EU. Yes we have #MEPs but they do not seem to tell us anything.  I cannot honestly remember seeing or hearing an MEP raise an issue which would affect UK businesses, and that is a parlous state of affairs. If MEPs are supposed to represent us, then we need to have more interaction with them in the same way as we can and do with our domestic MPs. Do MEPs have local surgeries at which folks can raise issues?  I have never heard of one in the North West where I live!

So we should tell our MEPs we have a problem, what then? 

I emailed all 8 of the NW MEPs on the 17th May 2015  (via the www.writetothem.com website) about the VAT issue, raising my concerns and asking that they raise the matter with the EU as a matter of urgency.

To date I have had the following responses:

Julie Ward MEP - auto-acknowledgement (18th May)

Louise Bours MEP - brief reply saying, "agree that the EU Vat proposals are not beneficial to UK businesses and they will not support them in any vote. Ultimately of course, UKIP would withdraw from the EU and regain control over VAT, via our own Parliament." (18th May)

Afzal Khan MEP  - auto-acknowledgement (18th May)

Paul Nuttall MEP - no reply whatsoever!

Sajjad Karim MEP -  no reply whatsoever!

Steven Woolfe MEP -  no reply whatsoever!

Theresa Griffin MEP - brief reply saying, "Thank you for your email on the changes to VAT. In order to increase efficiency and productivity, the Labour MEPs for the North West have divided the constituency in terms of casework. My colleague Julie Ward has responsibility for Westmorland and Lonsdale. I have spoken to my colleagues in his office and have asked them to look into your case. They will revert to you shortly." (20th May)

Jacqueline Foster MEP - detailed reply from her office as follows, "Thank you for your email. 
Conservative MEPs have, this week, again called on the EU and national governments to address some of the devastating problems caused by new rules for VAT collection. Mrs Foster is particularly concerned that the so-called Vatmoss rules are driving small-scale online entrepreneurs out of business by obliging them to collect and process VAT payments, even if they conduct only a tiny amount of overseas trade. A recent survey of 2,000 small companies says a quarter now block overseas sales and a fifth have stopped selling altogether. They are no longer earning money - so authorities are collecting no tax at all. Conservatives agree that the easiest solution is an exemption, a threshold, for small businesses.  Tackling Vatmoss requires a unanimous decision by all the EU's finance ministers – but that must happen and happen soon and Conservative MEPs are working with Ministers in the UK Treasury to seek agreement from across the EU." (20th May)

This is a wake up call for the North West's MEP's

It's hardly encouraging, that just three of the eight have bothered to reply! Yet these eight MEPs will no doubt expect me, and others, to vote for them come the next Euro Parliamentary election... but why should I if they cannot even be bothered to listen and respond to legitimate concerns about how the EU's actions is having an adverse effect on my business and the businesses of others like me?

Come on MEPs, do your job and help small businesses out of the #VATMESS that is #VATMOSS by raising the issue within the EU and lobby your colleagues in other countries so we can get a speedy resolution to what is an EU-wide problem, not just us Brits having a moan at the EU again!

We need an Emergency Interim EU VAT Suspension from UK Gov't!

At last week's EU meetings it was made very clear that there would be no immediate help coming from the EU for low-turnover businesses being hit by the new EU VAT rules on cross-border digital sales.

Despite accepting that there has been unfortunate and unforeseen consequences for low-turnover businesses, and that something needs to be done to put things right, the EU mandarins have said it is not going to be considered until the end of the Summer, 2015, at the soonest, and no action will be forthcoming until 2016 at the very earliest.

FOR MANY BUSINESSES THAT IS SIMPLY TOO LATE!

Already businesses are struggling and failing to comply with the evidence requirements for cross-border sales. Add another year to the mix and many more will have closed their doors or stopped digital sales totally.

We have been told that there is something that the UK government can do to help, but we need YOUR help to make it happen.

It is called an Emergency Interim EU VAT Suspension, which basically means the UK government agree to suspend the new rules until such a time that the EU gets its act in order and provides a permanent fix for the mess it has made for micro-businesses.

What we need is for everyone to write to their own MP - you can use this site https://www.writetothem.com/ to contact them by email if it is easier than emailing them directly - and ask your MP to demand an Emergency Interim EU VAT Suspension on behalf of the thousands of small UK businesses that are suffering under this scheme.

Also, if you are a member of a Trade Association, please ask that they lobby the government for the same suspension. The EU VAT Action campaign has this to say about who to lobby and how,

If you are a member of any kind of trade of business association, please write to their Chair today to ask them to support the call for an immediate interim ESC to remove the burden of these rules from micro businesses. Please ask them to contact:

• PM David Cameron
• David Gauke (Financial Secretary to the Treasury, who would have to propose this legislation)
• and Jim Harra (HMRC Director General of Business Tax, who would need to propose this to David Gauke).

Please copy your request to your MP and ask them also to lobby David Cameron, David Gauke and Jim Harra.

Please also ask your industry body to contact any colleagues they have in other industry organisations and trade bodies, to urge them to do the same.

The more people who raise the issue with their MPs the better the chance we have of getting the Emergency Interim EU VAT Suspension, so please do this and help the thousands of us who are struggling to comply with the unintended consequences of this unfortunate EU legislation.

More details can also be found on the EU VAT Action website here .

Hilary Clinton championing small businesses in her USA presidential bid

Who would have thought I could get to speak to Hilary Clinton on EU VAT? :) 

Well not actually SPEAK... but Hilary has joined LinkedIn as part of her presidential campaign, as she wants to connect with small businesses in the USA.

And she has written her first post today outlining how she wants to make the burden of tax and admin easier for small businesses, and so I have added a reply pointing out the detrimental effect that the EU VAT rules are having on American businesses trying to sell into Europe.

If anyone else on LinkedIn wants to add comments to the post it strikes me as a good way to raise the issue's profile in the USA.

https://www.linkedin.com/pulse/four-ways-jump-start-small-business-hillary-clinton

How the new #EU #VAT rules are hurting buyers!

The new #EU #VAT cross-border digital sales rules don't just affect sellers, they hit buyers too, as if we have to charge VAT you have to pay more when you buy from us! That's no fun, is it?!

But it's even less fun when you realise that these rules are going to be extended to cover sales of anything that goes from one EU country to another, or from one non-EU country into the EU. Are you listening yet America? Canada? Australia? New Zealand? Japan? China? Rest of the world?

Low-turnover businesses have been covered by their home country's VAT threshold until 31.12.2014, and still are for sales they make within their home country, but get caught up in the VAT rules when they sell outside their home country, even if the item is a penny!

OK so what will happen if those digital sellers at the low-turnover end of the marketplace stop selling online? Will it affect you? You may think not, but you'd be so wrong!

Do you buy music from indie bands?
Do you buy apps for your smartphone?
Do you buy games or modifications for games for your computer?
Do you buy software?
Do you buy patterns for your knitting, crochet, craftwork?
Do you buy images for use in your projects?
Do you buy ringtones for your mobile phone?
Do you subscribe to a specialist digital magazine?
Do you buy ebooks from indie authors?
Do you undertake online courses to learn a new skill or hobby?

If you said yes to any of those questions then you are affected by this issue.

Juliet McKenna of the EU VAT Action team has been looking into the issue, after the team undertook a survey of more than 2,000 small traders whoc supply exactly the sorts of digital products I listed above. Her findings are worrying. Here is what she says,

If there’s a big company behind your chosen product, they’ll probably be able to cope. It’ll be a hassle for them, no doubt about it, but they have the resources.

If that business is run by just one person, working on their own? Then it’s unlikely they’ll be able to handle the new rules. Just how many of those resources come under the heading of “automated digital services”. In other words, they’re all now subject to the new rules requiring whoever’s offering them to charge the correct VAT rate where you live.

The administrative burden of trying to figure out, with up to 3 pieces of information, where your customer is and the choosing the correct rate from the EU’s 81 options is enormous. Most small businesses do not have the means to do this.

The people who create these amazing resources, unless they’re a big business with tech support, are more likely to close or to block your country than to be able to comply with the new EU VAT rules.  Here is the link to the full article.

Ahhhh, you say, but I don't buy things I get mine for free...  maybe you do, but not for much longer!  Your "free" product is actually paid for by the advertising revenue that is made by the site from which it is sold, or via ads within the product itself (those ads you see in apps are a prime example).  That advertising revenue now comes under the EU VAT rules so the seller has to register for VAT, and has to account for the VAT on the revenue and pay it to the relevant tax authority.  So what?! you might say... well here's what...  that all takes time to do, it costs money to do, as managing VAT returns means higher accountant's fees, it means registering as a data controller, and a host of other hassles that go with it and take up your time - and as we all know, time = money in a business! 

So, if you believe in a free marketplace where you can buy your digital products you really do need to take notice of what's happening with the EU VAT rules.  The answer is not to pull out of the EU, but rather to shout loudly to your MEPs that the EU has got it wrong. If enough of us shout they might listen.  If we don't shout, then we will all just be shopping for the same old things at Amazon and eBay in the future!

Are the #EU listening to low-turnover businesses? Possibly!

I've feeling more hopeful tonight than I have been in months since I discovered the idiocy that is #EU #VAT #VATMOSS. This is where sellers of digital products within or into the EU have been required, since 1st Jan 2015, to register, charge and account to HMRC or another EU member state, the VAT on cross-border sales, even when the seller is below the VAT registration threshold in their own country, and thus not liable for VAT on domestic sales.

Tonight I have watched a video posted by Julia Reda, who is an MEP from Germany, who asked Digital Commissioner and EU Commission VP Andrus Ansip if help would be forthcoming for the businesses that are being damaged by the scheme, and if the EU would consider introducing a threshold below which cross-border sales would be exempt.  Julia suggested a turnover level of €100,000 pa.

Commissioner Ansip appears to agree with her!

It is now up to the EU's meetings, which are scheduled for next week (Mon & Tues) to decide to support or oppose the proposal.  Initially this was seen as being a problem which only affected us Brits, but thanks to the sterling work done by the EU VAT ACTION Campaign over the last 6 months, it is now clear that it is affecting people throughout Europe and beyond. That is a consequence that the EU certainly had not anticipated!

The video is well-worth watching!

EU VAT needs a sensible threshold, here's why...

How much help would a €100,000 EU digital VAT threshold actually offer? Juliet McKenna explains what the costs are of compliance with the EU VAT regulations for digital sellers, why a threshold is needed and why it needs to be at a sensible level!

http://euvataction.org/2015/05/11/how-much-help-would-a-e100000-eu-digital-vat-threshold-actually-offer/

EU VAT action is STILL on our menus!

The EU VAT issue for digital small/micro/nano businesses has not gone away.  Juliet McKenna explains why 3rd party marketplaces are not the answer and why low turnover businesses need the support of a sensible cross-border VAT threshhold, to allow them to survive and grow, and compete with the big-boys on a level playing field,

http://euvataction.org/2015/05/13/eu-vat-and-third-party-marketplace-myths/

Help Us Alert the OECD to the EU Digital VAT Catastrophe

I'm sharing the information below which I received from EU VAT Action Campaign's Juliet McKenna (with their consent) in the hope that readers will help alert the OECD to the EU VAT disaster which is hurting and even killing small digital businesses. Please help if you can and share this post on.

Alert the OECD to the EU Digital VAT Catastrophe

The Organisation for Economic Co-operation and Development (OECD) promotes policies to improve economic and social well-being around the world. It provides a forum for governments to work together and share experiences and seek solutions to common problems arising from economic, social and environmental change. They also look at issues like how much people pay in taxes and how this affects business.

At the moment, they are looking at international VAT/GST guidelines on place of taxation for business-to-consumer supplies of services and intangibles. That’s ‘Value Added Tax’ or ‘Goods and Services Tax’ depending on where you live, equivalent to US sales taxes added at the time of purchase. Intangibles means digital products and services.

This is a hugely important opportunity for everyone to voice concerns over the ways in which start-ups and small businesses are being wrecked by the new EU regulations on VAT payable on cross-border digital sales.

It is particularly significant for those in OECD member countries outside the EU such as the United States, Australia, Canada and New Zealand. This is the best way to make your voice heard on this matter.

Getting as many responses as possible is vital. These regulations have been devised with the biggest companies in mind. The OECD needs to know the destructive consequences for smaller enterprises and the damage that will do to grassroots economies around the world.

There is currently a Discussion Draft for Public Consultation available here.
http://www.oecd.org/ctp/consumption/discussion-draft-oecd-international-vat-gst-guidelines.pdf
 
We need as many people as possible to comment on this document by 20th February 2015.
You need only send two or at most three pages. The more focused your submission is, the better and please use your own words as far as possible. The more individual you make your argument, the more weight it will have.

Having researched previous similar consultations, this is the format we would use:

1. A brief statement of who you are and the reasons for your interest in the implementation of the 2015 EU VAT changes to electronic B2C services.

2. General comments on the problems with EU digital VAT, VATMOSS etc, briefly outlining your key concerns. Keep this section concise, just a couple of lines.

3. Specific issues for you, your business and your particular sector. For each point that you raise, make a direct reference / citation to a specific paragraph in the Discussion Draft (link above). Please cite the paragraph number.

If you find the prospect of searching through that document off-putting, please don’t! We have identified the key reference points for you in the detailed guidelines you can download from HERE as a Word document.

4. Conclusions/Suggestions. If you’re commenting as an individual, you need not include these. If you’re submitting on behalf of a group, you may or may not wish to include the EU VAT Action campaign’s stated aims. It’s entirely up to you.

Please prepare your response and submit it in Word format by e-mail to Piet Battiau, Head of Consumption Taxes Unit, OECD Centre for Tax Policy and Administration at piet.battiau@oecd.org.
Once you have sent your submission, please tweet to let us know and to help encourage other people to do the same. Please spread the word about this opportunity for positive action through your other business and social networks."

Tweets should be addressed to @euvataction and you can join in the campaign by following them here https://twitter.com/euvataction

EU VAT rules are hurting the smallest digital sellers

If you are a small, micro or nano business affected by the changes to the EU VAT system would you please fill in the anonymous survey form which EU VAT Action are using to gather evidence that the system is hurting such small businesses, ready to present to the European Commission soon. http://euvataction.org/take-action-now/complete-the-survey/

I'm not registered for VAT, so why does it matter to me?

The new rules were brought in to prevent the widespread abuse of the VAT system undertaken by huge online sellers, who were able to manipulate their home country to take advantage of the country with the lowest VAT rate. The changes made now mean that VAT is charged on digital products at the rate in force in the buyer's country, not the seller's country.
As a principle it's not a bad one. But, and it is a huge BUT... what has happened, and is continuing to happen, is that the very smallest businesses, whose turnovers under UK's rules are below the domestic VAT threshold of £81,000pa, have suddenly found that if they sell any digital product outside the UK but within the EU, and that even means an item sold for just one penny, they have to register for, charge and account for VAT in the buyer's country.

Now consider the situation...

What is a digital product? The EU has defined them on its website here http://ec.europa.eu/taxation_customs/taxation/vat/how_vat_works/telecom/index_en.htm and they include telecommunications, broadcasting and electronic services. Hah! you might say, how does that affect me as I write ebooks or sell downloadable knitting patterns or build websites and register domain names... well, guess what? All those things fall under the EU's definition of electronic services and so also are subject to the new EU VAT rules. Did I hear you scream?
Here's a handy list of what HMRC says are covered by the electronically supplied services definition... 

Electronically supplied services

The rule change only applies to ‘e-services’ that are ‘electronically supplied’ and includes things like:

• supplies of images or text, such as photos, screensavers, e-books and other digitised documents eg, pdf files
• supplies of music, films and games, including games of chance and gambling games, and of programmes on demand
• online magazines
• website supply or web hosting services
• distance maintenance of programmes and equipment
• supplies of software and software updates
• advertising space on a website

 Well it gets better, as not only is there no threshold below which your sales outside the UK to other EU countries are exempt, but you have to work out which VAT rate applies for each product in each EU country - and most countries have more than one rate! - and present the price to your potential buyer in their own currency with the VAT included before they commit to buy. That's something which the majority of shopping cart scripts used by small online businesses are unable to do. It is too complex code-wise, but even if they could manage the coding there is still the issue of the amount of server processing power needed to make complex queries, and those sellers on shared hosting platforms will find that their webspaces will not be able to handle those processes.

But back to the VAT itself...

Hah! I hear you cry, I bet there is a list of VAT rates somewhere. And you would be right... there is a list, and it changes as EU countries make changes, and you have to keep up with those changes and make sure that your sales page reflects the correct rate in force at the time your potential buyer visits. But first of all you have to figure out which country your potential buyer is in... now how will you do that? Did I hear you suggest using an IP address? Yes, it is one of the things the EU says you can use as your evidence of location... oh, did I not mention evidence before? The EU requires that you obtain two non-conflicting pieces of evidence to prove the location of your buyer, but the HMRC has provided a handy list so you can see what you can use as evidence.

Examples of the type of supporting evidence that tax authorities will accept include:

• the billing address of the customer
• the Internet Protocol (IP) address of the device used by the customer
• customer’s bank details
• the country code of SIM card used by the customer
• the location of the customer’s fixed land line through which the service is supplied
• other commercially relevant information (for example, product coding information which electronically links the sale to a particular jurisdiction)

So, for a digital service where your potential buyer has, in the past, just given you an email address and you or your payment processor has taken their card details, you now have to extract any 2 of the above bits of info from them - information which many people are loath to share online for fear of fraud, identity theft, or just plain desire for some privacy! But you MUST obtain at least two items from the list, and what's more, keep that evidence in a safe place for at least 10 years. Yes, you read that right - 10 years!

So you still want to sell digitally online...?

OK, so assuming you have a shopping cart, and can obtain the necessary evidence of buyer's location, what next? How do you actually pay the VAT you have collected? Well, you could register in each of the 28 member countries of the EU, and complete a return for your sales in each country... or you could send a silent thank you to the HMRC who have set up a VAT MOSS (one stop shop) where you can submit all your VAT returns for every country in the EU via them and they will disburse it for you. Do note though that you still have to work out which amount is payable to which country yourself, all MOSS does is save you that hassle of separate returns and payments.

My head hurts, is there not an easier way?

In a word, no, or maybe yes. Under the EU rules a business is not supposed to refuse to supply,or block, sales to buyers in other EU countries, but the EU has confirmed in writing that where a business is seriously disadvantaged by having to sell outside its home country, then the EU will accept that they should not be forced to do so. But that does mean that any sales we used to benefit from outside our home countries will be lost to us. In many cases they are only small amounts, but for a very small, micro or nano business every sale could be the difference between staying in business and closing down.

This is just a European problem that doesn't affect the rest of the world, right?

Wrong! Sorry but if you are a small business outside the EU you are still affected, as you are now expected to charge EU buyers VAT on your sale and remit that to the EU country involved too - yes that means you folks in the USA, Canada, Australia, India, Africa, and even little green men from Mars if there are any!

So what can we do...?

Firstly, if you are affected by the new rules please do fill in the survey at the top of this post. Here's the link again to save you scrolling back up the page: http://euvataction.org/take-action-now/complete-the-survey/

Every bit of evidence we get about how these changes are hurting is important - not just for us here in the UK, but for sellers across the whole of the European Union, and those sellers outside Europe who want to be able to continue to sell to us Euro-folks. Our money is good anywhere, we're just sorry the new EU VAT system sucks!

Secondly, sign the petition on change.org calling for the immediate suspension by the EU of the new rules for micros-businesses and sole traders: https://www.change.org/p/pierre-moscovici-a-unilateral-suspension-of-the-introduction-of-the-new-eu-vat-laws-for-micro-businesses-and-sole-traders

Thirdly, if you are in UK or the EU, please contact your local parliamentary representative, MP or Euro MP and explain why the new EU VAT rules are hurting small businesses. If you are outside the EU you can still raise it with the EU directly, and the more folks who do, the better they will listen. There is some handy help on the campaign website http://euvataction.org/2015/01/21/time-for-an-action-challenge-for-eu-vat-you-might-enjoy-this-one-come-and-join-in/ Ask them to raise the matter urgently, and then tell the campaign what reply you get back. http://euvataction.org/contact-us/

Finally, spread the word. I was shocked to learn of these changes in the middle of January 2015. That's more than a fortnight after they came into force. I'm suspecting that there are a lot of people who still do not know about them. Those folks are at serious risk, as simply not knowing about the rules is no defence under the law, and the VAT-man has powers that would make your eyes water! Even if someone hears about changes to VAT for digital products in the EU they may not realise that they are affected by them, as they may assume the UK domestic VAT threshold still applies. IT DOESN'T! 

Nothing has been sent to sole traders and tiny businesses about the changes. If you are not already VAT registered in the UK the chances are you have not been told by HMRC, and as this is one of the biggest changes to the VAT system since its introduction, that's pretty shabby. Despite the fact that HMRC has the name and address of all UK small traders who complete their annual tax returns, they have been sent nothing about the EU VAT changes, yet letters reminding us to submit our tax returns have been sent out at least twice in the last year. Why did they not pop a flyer in with those letters? I'll let your imagination answer that question. Perhaps if we had known sooner there would have been a big outcry from the thousands affected by the changes. So now we have to deal with what we have - a system which we cannot use for a host of reasons, or the option to close our businesses.

Please help small businesses fight this change. Just raising awareness amongst your friends, colleagues, and groups would be a huge help. I cannot find a dedicated group on LinkedIn which is tackling this, but there are two on Facebook, where so many of the smallest businesses start out. More info is available there, and offers of help and support would be welcome in both groups. Here are the links in case you want to pop along: https://www.facebook.com/groups/DigitalVAT2015 and https://www.facebook.com/groups/euvataction and thank you for sticking with me and reading so far.