Me In The Middle
Vince Cable - Ignorance
Vince Cable - Ignorance

Breaking micro business for the sake of politics

A Big Think

Topic:  Business
Mood:  Gobsmacked

Here is a great idea!

Those nasty Amazon chappies have gone and based themselves in the EU country with the lowest VAT rates so they can pay as little tax as possible. Lets make it so they have to charge VAT based on where the customer is rather than where they are - that will solve it!

What? Tiny little companies are going to get clobbered by this too? Who cares, pathetic little trader person? I am off getting Votes!

And so, a few years ago, the EU countries conspired to raise a couple of billion extra (possibly - not proven yet) from multi-nationals and did not give a fig for how this might impact others. And how did they manage that? Well, it appears that they did not even know that "others" existed, or would even worry about it.

The others, in this case are Micro Businesses - those tiny little one-person-band operations, often students trying to raise a bit of cash, or someone getting a bit of extra income. Well, that is what I always assumed. However, the EU seems to have another definition: "Companies who's turn over is less than 2 million euros." And the UK say it is businesses with up to nine employees. Seems like their idea of micro is somewhat different from mine.

Well, I am sticking to mine, because that is where the problems all start. 

The VAT Rules

As of 1st Jan 2015, anyone selling to EU consumers (not business) and selling digital products such as downloads, will HAVE to charge VAT at the rate of the purchaser's country. This will apply whether or not you are VAT registered or even in the EU. YOU HAVE NO CHOICE.

So, that is 27 different rates (and counting) and you have to have at least two bits of evidence proving where the customer is (and keep the evidence for ten years).

Calm down, calm down dear! Says Vince Cable and the EU. This wont affect any of you tinee-weeneee micro businesses out there because you all sell via agency organisations like Amazon and are far too tiny to sell internationally! You have to big a big boy to do that!

Well, Cable, dear, shows how much you know.

All those THOUSANDS of little software people, music people, and lots of other digital people ALL sell internationally, NEVER sell via third party suppliers because they charge too much and, most importantly, are not making enough money to hire an accountant to sort out the ton load of shitty paperwork that you have just vomited onto their heads.

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To be fair, none of this is new. Vince Baby and friends have been telling all of us micro companies all about it since 2008 so we have only ourselves to blame. Well, that is what he is mumbling about. The reality is, of course, is that they have done a handful of roadshows about it and invited all those Micros that earn up to two million euros - it never struck them to tell the thousands of companies that only earn a few thousand, possibly not enough to even pay tax.

In the UK the VAT threshold means you can earn up to £81,000 a year before you must register to charge VAT. This has been vital to small business who can reduce paperwork and stay competitive against those bigger companies who benefit from the economies of scale, or are simply multinational bullies.  To take a bit of the pressure off, HMRC has created a VAT one-stop-shop called VAT MOSS which allows these "below-the-threshold" businesses to register for vat just in the UK rather than having to register in every single country (which is the alternative) and to only charge VAT on the applicable, extra-uk goods. UK only goods remain covered by the threshold. 

While that is welcomed, many of these tiny businesses sell all over the place, it is the only way they can sell enough, and they are going to suddenly find that their prices have gone up by anything up to 27% depending on country, meaning many consumers will simply stop buying or will want to deal under the counter. Or just run off and get a pirated version of whatever.

So, tons more paperwork, lack of competitiveness, is there anything else they can hurt us with?

Next target for the vote grabbers
Next target for the vote grabbers
Well, this does not just apply to EU companies, but to ANY company or person selling to EU consumers. But how the hell are they going to track down some person selling an e-book via their own website from Outer Mongolia and persuade them to start charging VAT at 27 different rates?

And there are other grey areas. These new rules do not apply to B2B transactions, only when selling to consumers. So, how do you tell the difference? Many, many small businesses are not VAT registered or are not registered as a business except on their tax submissions. They have no registration number that can be verified. So, suddenly, a pile of B2B transactions are going to fall into the net. Guess what? Seems like none of the politicians realised this was even possible.

"Oh, come on! All us MPs know that companies all have huge firms of accountants in their employ and are registered on the Stock Exchange - at least the ones we go to lunch with are....."

And, then there is the elephant in the room, or at least waiting to enter the room. Currently this only applies to a confusing array of goods and services that are delivered digitally by some automated system. But Mr Elephant has something to trumpet about, because hot on the heals of this is the next raft of legislation where ANY goods of ANY type will be subjected to the same rules.

Yep, you Mrs McDonald up there in the Outer Hebrides selling three handmade jumpers per year .... you're next.

Update:

Clare Josa, a campaigner, has asked people on Facebook who are definitely closing their business because of the new rules to leave a message on Facebook

Go to Facebook

#EUVAT
Talk about it

Be nice, don't swear, keep to the subject. This is not some "adult only" room where you can be a big jerk and think you are all grown up. We are all stuck in the middle one way or another, so be fair to the others you are stuck with.

Love and kisses, @its_middle_me

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