I suspect not many of us are aware of the changes to VAT regulations that the EU are implementing from 1st January in respect of digital sales. Those of us that are, probably applaud the reasons for the change, to stop multinational companies like
Amazon,
Google etc dodging paying a fair rate by "residing" in low VAT countries like Luxembourg.
However, due to some bureaucratic SNAFU in Brussels, anyone selling an e-product direct to a customer, no matter how little they sell it for, will have to not only register to pay VAT, but also play the appropriate VAT for the country of the purchaser to that country (that's 75 different tax rates in 28 countries). And no, the £81,000 UK VAT registration threshold does not apply, you sell one set of rules to Germany for a fiver, you have to pay the VAT and comply with all the other rules including keeping customer details for ten years etc. A complete nonsense.
To make matters worse, the intention of the EU is to extend this to physical goods sold online from 2016 so that will effect almost every small wargames company and put many out of business as they will not be able to afford to administer the regulations. This
article in today's
Telegraph sums the farce up quite nicely.
There are two petitions on this matter that I urge you to sign, one to Vince Cable
here and one to Pierre Moscovici
here.
Do you think it likely that these laws would actually be enforced on micro businesses?
ReplyDeleteThe cost of such enforcement would be much higher than any tax take. I really think that hmrc have bigger fish to fry (unregistered wargames business being a much easier hit if still a minnow)
Why not set up the business as a limited company so any 'potentially' punative penaties would be against it rather than the individual ?
Well HMRC have said they will enforce the new rules and will use 'webbots' to track sales. How realistic that is I don't know but many traders would not want to flout the law in the hope of avoiding paying.
DeleteI'm not sure how setting up a Ltd Company (another cost) helps here. The business would still have to comply with the regulations with all its costs and administration.
The other nightmare situation for these small businesses is that you need to have 3 forms of identification from the buyer to prove where they reside. The small business also needs to keep all this information for 10 years and can be audited on it at any time!
ReplyDeletePaypal addresses do not count, nor do things like delivery addresses... so god knows what these businesses are supposed to be using for this information.
From some of the talks the petitioners linked above are having, HMRC were as confused as everyone else. They class a small business as 50-100 (ish people) iirc and had not considered the impact on sole traders, or very tiny companies
The point of the limited company is to ignore the legislation and, if prosecuted, close the company with no liability falling on the owners
ReplyDeletePerhaps it is easy for me to say as I am not taking any of the risk but to me the moral response to an unjust law is to ignore it - the limited company idea is simply risk mitigation
Section 61(3) of the VAT Act 1994 allows for the VAT debt owed by a limited company to be transferred to the directors themselves. It perhaps the only debt which can be charged to an individual(s) in relation to a limited company (afaik any way).
DeleteHow does this affect the individual War-gamer who is not a business but who sell the odd surplus item from their respective lead mountain on ebay, maybe one or two every other month?
ReplyDeleteIt does not really. You have to exceed a specified turnover level to be liable to pay for VAT and if you fall into it you are definitely not selling a couple of figures here and there.
DeleteI don't think it will impact people making odd sales on eBay BUT if you run a business (even a part time one) regardless of turnover you are liable for tax AND if the EU regulations are unchanged you pay VAT (for the country of the purchaser) on directly sold e-products from 1st January. The EU have stated that the intention that this will be extended to physical goods sold via the internet in 2016 and (as conformed by HMRC) there is NO threshold.
DeleteI don't pretend to know all the ins and outs of this, but what immediately springs too mind is that it could make companies based in high VAT countries more competitive internationally.
ReplyDeleteIf your customer is charged depending on where he lives, rather than where the company is based, barring postage, the company is only charging the same VAT as a company based in that country. Lower prices for some, more for others.
Conversely a company based in a low tax country now has to charge more when sending to a high tax country, making them less competitive and in some cases liable to pay when previously they were not, which of course was the whole idea behind this.
Yes, the intention is to level the playing field currently exploited by the likes of Amazon how pay the Luxembourg VAT rate on sales in the UK, France and Germany. However the problem is no one in the EU or UK Government thought about the impact on small part-time bedroom operations. The simple solution is to apply the UK VAT threshold for all sales in the EU, however that is not the situation as the new regulations stand.
DeleteThis is similar to the debates in the US about charging sales tax on online purchases but the implications are even bigger. In the US sales tax is a local matter at the city or town level mostly. It can go up to the state level in some cases. That is thousands of tax codes that a small on-line business would need to comply with. Ironically, these types of regulations only help big business as they can afford to comply.
ReplyDeleteIndeed, that is why they employ compliance officers! Interestingly non-EU companies have to pay the VAT on EU sales as well. I have seen the US Dept of Commerce document that is quite explicit on this and explains what businesses will need to do to comply (and no I have no idea how the EU intend to enforce this, presumably some deal has been struck with the US).
DeleteThere is no such thing as "paying a fair rate". Taxes as a concept are not fair. They are simply a legitimized avenue of theft for an even larger monopolistic organization that we call "government". ;)
ReplyDelete