VATMOSS affects the sale of digital products like E-BOOKS directly to customers in the EU. Please consider this legislation before making direct sales, and/or seek tax advice.
Small businesses are meeting European Commission officials in Dublin today (7 September) to lobby for changes to the VAT rules on the supply of digital products in the European Union.
Since 1 January, businesses supplying broadcasting, telecommunications and digital services to consumers have to charge customers VAT at the rate of the country where the customer buys the service from, rather than where the supplier is under the previous rules.
The new rules hope to stop companies such as Amazon basing their European headquarters in countries such as Luxembourg where VAT rates are much lower than the UK. But small business groups argue that the rules are difficult and expensive to comply with and hinder online commerce.
HMRC attempted to help businesses comply with the new rules businesses by introducing an online VAT registration system − called the VAT Mini One Stop Shop (MOSS). It lets businesses register once with HMRC for VAT in every EU country they supply electronic services to.
But small businesses complain that the VAT MOSS system is still overly complex, particularly for traders who turn over less than the UK VAT registration threshold of £82,000. There are more than 80 different VAT rules in the 27 member states in the European Union, experts say. Proving where customers are when they download the product isn’t easy, they also say.
Critics of the new VAT rules, including accountants, claim that some businesses have collapsed because of the rules or have stopped selling electronic products, such as e-books and apps, in the European Union.
“We have until that conference to convince the Finance Ministries that this current system is damaging for all businesses and unworkable for those who simply cannot meet the administrative burdens and costs of compliance necessary to sign up for VAT MOSS,” says EU VAT Action, an association of businesses that’s campaigning to make it easier and cheaper to comply with the VAT rules on digital products. “Otherwise there is no realistic prospect of seeing meaningful changes to this destructive legislation before 2017/2018.”
It claims that the VAT rules mean that businesses:
- Incur hundreds, often thousands of pounds/euros in costs and weeks of lost productivity to restructure your business to offer a compliant shopping cart
- Add additional steps into your existing payment system to request location data from your customers, increasing your lost sales (cart abandonment rates)
- Display your prices without VAT (even though that’s technically illegal in many European countries) and add varying rates of VAT at the check-out, increasing your lost sales (cart abandonment rates)
- Raise your prices to offset the VAT you’ll be paying, thus sacrificing competitiveness, or pay the VAT out of your existing profit margin, thus sacrificing income
EU VAT Action didn’t respond to a request for an interview.
Paul Soper, a tax lecturer and AccountingWEB contributor, said the EU should introduce a minimum turnover threshold businesses must exceed before they have to register for VAT on digital services.
He also said the requirement for businesses to keep customer data relating to VAT transactions on digital products was excessive and should be reduced for small businesses.
But are campaigners exaggerating the problems caused by the new VAT rules? VAT expert Les Howard, thinks so.
In any case, small accounting firms are unlikely to be too interested in the new VAT rules because advising business on them is too much hassle and not profitable enough, he told AccountingWEB.