Number of businesses EU VAT rules affect ‘underestimated’
HMRC’s underestimation of the number of small businesses affected by the new VAT EU rules on the supply of business to customer digital services caused thousands to struggle with the new regulations.
The claims were made by the EU VAT Taxation report, recently published by small business network Enterprise Nation.
A year before the rules were due to come into play, the report says, an HMRC investigation found 340,000 businesses would be affected, but 5,000 were not registered yet for VAT.
But Enterprise Nation said it found figures reported by the Department of Business, Innovation and Skills showed that there were 350,574 non-VAT registered firms trading in digital products. This figure did not inform Revenue research however.
Accountants and small businesses alike have lamented the lack of timely and clear information given before the rules came into force.
The thousands of businesses which didn’t find out they were affected until a few weeks before the rules came into force, was a result of this underestimation, the report claims, saying this impacted who was contacted and how.
And the Revenue’s VAT Mini One Stop Shop (MOSS) system was aimed more at those above the UK’s £81,000 VAT threshold. However the report found eight out of ten small businesses fell below this threshold.
The filing deadline for returns to the quarter 31 March were due 20 April. AccountingWEB members have been sharing their experiences of how this has gone.
Tim Vane said it was annoying to have to do it less than three weeks after the end of the quarter. He said the “real effort” as in the planning and preparation, and in ensuring all clients have made their payments.
However others, such as Kent Accountant, choose to veer away from clients who fall into this category: “I avoid clients that have to comply with MOSS…life is too short.”
And clients themselves have taken to social media to express their frustration at the rules, including writer Cory Doctorow, who summed it up on Twitter with:
“Just filed my first #VATMOSS return with HMRC – cost me £700+ in software and accounting to calculate that I owed £18.74.”
The report warned that long term consequences as a result of these underestimations and miscommunication are likely to be a rise in costs for digital services within the EU. In the shorter term, the report says thousands of smaller firms have had no alternative but to “take a painful hit to profits while facing a long, expensive fight with British and European tax authorities.”
Emma Jones, founder of Enterprise Nation said that if details of the new charges and reporting responsibilities had been communicated earlier, there could have been scope for both a solution to the problem and an opportunity to make amendments to the bill.
“This report shows that while a minimum VAT threshold would be the best solution, that may well be some way off, partly because other European countries have never had a threshold at all, so will be reluctant to accept one at this stage,” she said.
HMRC had expected that the rest of those below the VAT threshold would already be selling via marketplaces like Amazon. However, 65% of small businesses said they sold products via their own website with only 17% reporting that they sold via a platform.
VAT expert Les Howard said he things the research confirms conclusions by various lobby groups.
“For some months [euvatadvice.org] have been warning that hundreds of thousands of micro businesses would be adversely affected by MOSS. My own experience confirms this, with a significant number of micro businesses actually closing down, or choosing not to deal within the EU, or changing their processes to ensure they supplies fall outside the MOSS rules.”
Howard said the low number of MOSS registrations, which is only a few thousand across the EU when many more were expected, puzzles him.
“I wonder if some are awaiting a major concession from the EU, and hoping that will mean they do not need to register. Once matters have settled down after the election, and any EU changes, there will be a great opportunity for training to be delivered in various contexts, to enable those businesses who are still struggling to deal withe VATMOSS to do so.”