Last night EU Commissioner VP Andrus Ansip made a formal statement in the Parliamentary debate about EU VAT. In it, he agreed that the consequences of this Digital VAT legislation are severe for small businesses and that the additional administration it brings is something they cannot manage. This is a huge achievement and a million miles from the ‘there, there, dear, just calm down’ responses so many of us received in December 2014 through to February this year.
In last night’s speech, he said the EU VAT rules are still mainly a UK problem. Although we have clear evidence that it is EU-wide, he is right that there has been more noise from the UK.
Back in March 2015, he and VP Frans Timmermans promised to urgently remove the burden of this legislation from Small Businesses, which was brilliant news. In various speeches since then, VP Ansip has also confirmed that he understands the huge urgency of this problem and wants to protect micro businesses and SMEs from the unintended damaging consequences.
However, in last night’s speech, VP Ansip said that the proposed threshold will only be €100,000 (about £71,000), instead of protecting micro businesses (<€2m) or SMEs (even higher) and he made no mention of the desperately-needed reworking of the rules, to make it possible for a business above the threshold to comply. He also said that they won’t even decide when to start discussing the required legislation until after the summer and that the legislation may not start to be discussed in 2016.
This means that means it could still be several years before your business gets the help it so desperately needs, despite us all having proven how desperate and urgent this problem is.
By that point, given his intention to extend this new EU VAT process to all tangible and intangible goods, most of us will either have to cease trading or to semi-illegally geo-block non-domestic EU customers.
It is wonderful that the EU and many individual Member States now agree on the magnitude of this problem. But it is not acceptable to sacrifice so many thousands of small businesses – with tens of thousands of people losing their livelihoods now and the loss of start-ups that will never get a chance to become the next generation of big businesses – due to the slow progress of the EU legislative machine.
There is an alternative.
The UK government (and those in other MS) has the option to introduce an interim Extra Statutory Concession (ESC).
This is a piece of legislation that would allow the UK to still comply with their EU agreement to implement the legislation, which they have done, and to keep it in place for the large businesses that are already able to comply. But it could immediately suspend the legislation for micro businesses (<€2m), allowing them to revert to the domestic VAT rules, in order to continue trading.
It’s not about tax dodging or asking for enormous VAT thresholds. It’s about accepting that the unintended consequences of this legislation are so severe for the smallest businesses that it is forcing them to cease trading, to block foreign customers or to drop their digital sales – and that they must be protected while the EU takes the time it needs to renegotiate a sensibly-high threshold and to simplify these laws above that threshold, so that that businesses are not penalised, in order to collect tax on behalf of other countries.
Micro businesses are already exempt from some other administrative burdens in the EU, such as formal audit, because it is felt this extra administration would damage the businesses and not be cost-effective for the governments. The unworkable administrative load of the new Digital VAT rules is far higher than that of audit and should therefore be treated the same way.
It’s time to undo the incorrect assumption that led to all this:
The EU – and the UK and other MS – made a fatal assumption, many years ago, when they were first negotiating these rules: they assumed that micro businesses would not be affected, because we never sell direct to consumers and we never sell internationally. Common sense is backed up by our research study and confirms that this is not the case.
Therefore no one considered the effect this would have on your or your business. They never intended these rules to apply to you. So it is time to suspend them – immediately – now we all know how severe the effect has been.
And, given the incredibly low awareness levels, worldwide, the EU has so far received under 10,000 registrations for its VATMOSS system, when it was expecting 1 million. These low awareness levels mean that individual Member States will only receive a small fraction of the money they were expecting from these rules. If you exclude big businesses, it is likely to cost more to collect the money from micro businesses and SMEs than the Tax Authorities will actually receive.
How you can help?
Get your Trade Association to write to the Government and demand an immediate Extra Statutory Concession (ESC):
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.
We need you to contact your MPs / MEPs / Regional Assembly Representatives with the same message – quick links for how to find them are at the end of this article.
About the ESC:
- This ESC would allow micro businesses (sub €2m) to revert to UK VAT rules and to continue trading, while the EU takes the time it needs to fix this mess
- It would need to remain in place until such time as the UK government and the industry representative bodies agree that:
- the EU has negotiated and legislated an appropriately high threshold, below which the new place of supply rules would not apply and businesses would revert to their domestic VAT regime
- the EU has simplified the rules above the threshold to make them reasonable, workable and affordable for the next size up of business
- the EU has proven that the rules will have no adverse effect on micro businesses or SMEs and that the cost of compliance (in time and money) will be both reasonable and proportionate
Your government could do this for you. Your industry body and MP can help make it happen.
Please share this far and wide. Together we can make the difference that is so urgently needed. The more of us who do this, the more quickly we can ease the pain of the micro businesses being crippled by these new rules. If we don’t work together to get this fixed, then the Digital Single Market won’t just be crippled. It will be dead. Billions of pounds and millions of jobs are at risk, in order that EU Member States can collect a comparatively tiny amount of tax.
When you have written your letter – or phoned – or visited – please let us know via the comments, so we can give you a hero’s cheer, and then please join us over at the Facebook group EU VAT Action Campaign group, to continue being part of the solution.
Clare & the EU VAT Action Team
Write to them: this is a very handy online resource to help you write to all or some of your local, national and international elected representatives at once.