First VATMOSS Returns – Notes and Queries

Posted on by Juliet McKenna, Co-Founder of EU VAT Action

EU VAT Action team members raised concerns arising from people’s experiences making their first quarter VATMOSS returns at last week’s HMRC Working Group meeting. Hopefully this feedback will be useful.

The ‘light touch’ allowing UK businesses to accept one piece of customer location data has been extended indefinitely beyond the 30th June.

This is good news for UK businesses and we would recommend those of you in other member states press your own tax authorities for a similar concession, enlisting the support of your MEPs and other elected representatives. We still need to make EU governments aware of the massive practical difficulties and unreasonable costs involved in complying with these new rules.

Payments that went astray have now been traced and allocated to the correct VATMOSS accounts.

HMRC tell us that people were notified of non-payment for two reasons. A small number of payments weren’t processed because they had been made on Good Friday – and the computer system couldn’t cope with the idea of a Bank Holiday that wasn’t a Monday… Now this glitch has been identified, we’re assured that won’t happen again.

Rather more people were sent stern letters because their VATMOSS payment had in fact been made to their VAT account incorrectly. All those payments have now been reallocated.

HMRC accept that the VATMOSS payment instructions could certainly be improved to make things clearer.

They’d like to know how and why people found this part of the process confusing. They are open to suggestions on improving layout etc.

Please email vat2015.contact@hmrc.gsi.gov.uk with your comments and ideas.

Going direct to HMRC with your problems and challenges is a powerful and direct way of HMRC getting the message and having firm evidence of the true volume of difficulties.

EU VAT Action remains committed to finding a genuine solution to this law and to working with government bodies to achieve that. However, we cannot be their buffer for the chaos and confusion that has resulted. They need to know directly.

Notifications about your VATMOSS payments are sent via the ‘Secure Communications’ facility included in your account.

People have been understandably concerned not to receive payment confirmations or indeed, any indication that there’s been a problem. It turns out such things aren’t emailed direct but directed to a mailbox attached to your VATMOSS account.

You should get an email notification that there’s a message waiting but there’s every chance that these are being snatched by spam filters. And of course, if you don’t know you should be getting a notification email, there’s no reason why you should go looking for it in the junk mail.

Here’s a shot of the screen you see when you log on to access the VATMOSS service. Clicking ‘view all communications’ will take you to your messages. You can also check that all the necessary boxes are ticked and your details are up to date, so you get email notifications in future.

secure-comms

Other EU tax authorities have been very firmly reminded that their VATMOSS queries should go to HMRC, not direct to UK businesses.

We’re assured there were only a few instances of people getting surprise letters from HMRC’s counterparts in other European countries. This shouldn’t happen again – but if you do get something unexpected from a foreign tax office, you should refer it immediately to HMRC via the email address vat2015.contact@hmrc.gsi.gov.uk.

We’re also assured that the German computer glitch which saw businesses across Europe issued with tax reference numbers for an office in Kleve has been identified and rectified. If you’ve had one of these letters, ignore it!

The EU Web Portal authorities are being asked to improve the information which their website supplies on an ongoing basis.

In particular, HMRC are stressing the need for EU VAT rates information to be kept up to date and to be downloadable/exportable in an electronic format that can be integrated with other software.

HMRC would like to know specifically what UK businesses require from the online resources offered by the EU.

Email vat2015.contact@hmrc.gsi.gov.uk with your comments and ideas.

Hopefully this will help make second quarter VATMOSS returns more straightforward!

Those of you not registered for VATMOSS because of the unreasonable burdens/impossibility of compliance can also contact HMRC to let them know all your EU VAT problems, the challenges for your particular business sector, and any ideas to help at vat2015.contact@hmrc.gsi.gov.uk.

This is how you can help make the most difference and help us all get the best response!

Juliet McKenna, Co-Founder of EU VAT Action
Professional writer of epic fantasy novels with excursions into shorter fiction, darker fantasy, some media tie-in stories. Find her books here.

Contact The EU VAT Action Team

http://www.julietemckenna.com

How much help would a €100,000 EU digital VAT threshold actually offer?

Posted on by Juliet McKenna, Co-Founder of EU VAT Action

It sounds like an awful lot of money, doesn’t it? €100,000 or £74,000 at current exchange rates. Surely that’s a high enough turnover threshold to mitigate the damaging impact of EU digital VAT?

Let’s look at the detail. Bear in mind that €100,000 isn’t a single person’s salary. It’s a theoretical business’s annual turnover, not profit. Profit is what’s left after operating expenses, wages, advertising, accountancy, IT and all other costs have been deducted from total income. A widely accepted rule of thumb is a new business should aim for 5% profit if it’s going to stay afloat. For a business on this proposed threshold, that means €5,000/£3700 available after all other overheads have been covered. That’s not money for throwing a party but for investing in ways to develop and expand the business.

How about moving into digital sales across Europe? For the moment, we’ll slide over the fact that online businesses are global by their very nature from the outset, because that’s how the Internet works. Let’s assume our theoretical business has been operating solely in its own EU state and now looks at the burden of VATMOSS compliance.

Bear in mind that this burden isn’t only additional accountants’ fees and computer costs. This business needs a software solution that’s fully compliant with the new regulations. A few are on offer now but a lot fail closer inspection. In addition this solution needs to be integrated with an existing platform and ecommerce systems. If something’s not compatible, there may well be further costs in new hardware and online services.

Even something as comparatively simple as cookie notification software can throw up conflicts. A VATMOSS solution will be vastly more complicated, demanding extensive shopping around, testing and bug fixing, all of which take up valuable time. The less IT expertise a business has in-house, the more time this will take. Time is something small businesses can rarely afford to spare and certainly can’t afford to waste.

Even hiring in IT specialists to handle everything isn’t a complete solution. Whoever’s running the business still needs to understand the basics of these new regulations in order to be certain that whoever is overhauling their online checkout understands exactly what’s needed. It takes time and effort for both sides to get up to speed. If they don’t? That’s how IT projects fail spectacularly and expensively.

And every hour spent on EU VAT, VATMOSS and compliance is an hour not spent on work generating income to contribute to that 5% profit. Businesses have reported compliance costing them one or two people’s full-time hours for at least a month, in some cases more.

Still, a business has to invest to grow. Speculate to accumulate. Maybe this will be worth it in returns from increased sales? Let’s hope so, since a business must commit to these up-front costs without necessarily knowing what their cross-border digital sales will be. Up until now, if you’re trading online, you haven’t needed to know where your customers are located. It’s not as if you’re sending them a parcel.

Here are some actual examples of costs in time and money incurred by businesses hit by these regulations since 1st January 2015.

Using the VAT they’ve discovered they owe for the first quarter, January to March 2015, and using 20% as an approximation of VAT rates, we can roughly estimate the value of their projected annual cross-border sales – always remembering that income from sales is by no means all profit.

• £1000 (plus 2 months of work) to build a new website to cope
£36.95 VAT owed for Q1 2015
£750 approximate annual sales subject to EU VAT.

• £500 in web development costs.
£0 VAT owed for Q1 2015
Fingers crossed for the rest of the year then…

• £1000 (£175 in accountancy fees plus time)
£10.09 VAT owed for Q1 2015
£250 approximate annual sales subject to EU VAT

• €900 – €1500 costs
€50 VAT owed for Q1 2015
€1000 approximate annual sales subject to EU VAT

• £700+ in software and accounting costs
£18.74 VAT owed for Q1 2015
£400 approximate annual sales subject to EU VAT

Consider those costs against that £3,700 available to our €100,000/£74,000 company.
Against £1,850 available after turning a 5% profit on €50,000/£37,000 annual turnover
Against £925 for a start-up bringing in €25,000/18,500 in its first year.

Every business must assess plans and investment with rigorous cost versus benefit analysis. Where’s the justification for spending money on an EU digital VAT solution when it’ll be anywhere from two to five years before the up-front cost is paid off and cross-border sales even become profitable?

Lots of other ideas will be competing for that money. Ideas offering far more realistic prospects for short term profit and longer term gains. Especially where digital sales are only one element of a trading strategy, alongside the sale of physical goods, consultancy or other services.

Even when a business is wholly digital, creating products still costs time and money. Making music, fiction, non-fiction resources, training materials, knitting patterns or anything else requires hardware and software. Those need maintaining and updating and digital enterprises still have to finance advertising, customer service, professional skills training, and so on.

No wonder online businesses in every EU state are now opting for geoblocking or using 3rd party marketplaces, even at the cost of a middleman’s fees. At least that only means losing money on actual sales. Others are doing away with automated digital products entirely, even if offering low cost, entry level downloads has been an integral part of their marketing strategy and business plan.

This includes businesses trading well over that proposed €100,000 threshold. We have heard from one enterprise with an annual turnover around £300,000 and nine staff. They have taken measures to keep their business outside the scope of this legislation after calculating their total annual VAT payable on the digital products they used to sell would be around about £1,500 per year. Compliance could cost up to £15,000. A €100,000 threshold won’t change their cost-benefit analysis.

These are the sort of calculations which underpin existing EU exemptions for small and medium enterprises, relieving them of the burden of compliance with other financial and audit requirements. These are the reasons why a business with an annual turnover of €2 million and ten employees can still be considered ‘micro’ and warrant such consideration, astonishing though that may seem.

But there’s no threshold or any exemption from these new digital tax regulations. A business is liable for collecting and handing over the correct tax owed, according to 28 different countries’ VAT rates from their very first €1 sale.

No wonder MOSS registrations across the EU by the end of this first quarter are so ludicrously low. And with registrations so low, how much income will the new system actually generate, to justify this wholescale upheaval? What revenue will governments see to offset the incalculable damage this is doing to the digital single market across Europe?

Juliet McKenna, Co-Founder of EU VAT Action
Professional writer of epic fantasy novels with excursions into shorter fiction, darker fantasy, some media tie-in stories. Find her books here.

Contact The EU VAT Action Team

http://www.julietemckenna.com

EU VAT – How Did The First Week Go? It's Not Pretty…

Posted on by Clare Josa, Mentor To Passionate World-Changers
EU VAT Action - Week 1 Results

So the new EU VAT rules have been in force for just over a week. We’ve been working with micro businesses to understand how they have been getting on – and here are some of the stories we have seen in the first week of the implementation of these new EU VAT rules.

  • Businesses are closing
    We have heard from 200+ UK businesses who have closed completely because they cannot deal with the administrative burden that the new rules place on them. It was either economically unviable for them to comply or they simply couldn’t face the administrative burden and have decided it’s no longer worth running a business. The case study comments are heart-breaking and are a devastating unintended consequence of this legislation, which could be immediately rectified by applying the existing distance selling thresholds to digital goods – even on a temporary basis.
     
  • Businesses are refusing to sell outside their home country
    We have seen many examples of EU businesses excluding EU sales from outside of their home Member State, to avoid the rules, which of course breaches fair trading & discrimination rules and causes the business to lose money. If you’re selling via a website, then your business is automatically worldwide. It is crazy to have to turn away customers, just to avoid the EU VAT administration burden.
     
  • The EU is becoming an outcast
    We have seen MANY examples of USA companies now refusing to sell to EU consumers, so that they won’t be hit by the new regulations, even though they already applied to the USA. This reduces consumer choice. Prices are increasing, too, to help cover the regulatory burden and the VAT ‘fudge factors’ (see below), so consumers are being hit twice.
     
  • Consumer choice cut and prices rise
    We are aware of thousands of businesses who have now dropped digitally-delivered services from their website, which will potentially damage their business and was never their intention, prior to hearing about the rules. It simply doesn’t make business sense to exclude digital products in this age, but they feel they have no choice.

    Many of those who are keeping digital products have had to put up prices to cover the extra VAT and the huge amount of admin.
     

  • Major 3rd party platforms aren’t complying
    Many of the major 3rd party platforms, including Etsy (massive for sole trading craft sellers) have not been able to comply, even though their compliance was a requirement of the legislation. If they can’t comply, how can a sole trader?
     
  • The sticky plasters are helping, but they’re a temporary fix and taking them off will hurt
    The concessions we have negotiated from HMRC and HM Treasury in the UK have kept many people in business, but will only last for six months.
     
  • The UK won’t get the millions it was promised.
    The news we are hearing this week from businesses is that Estonia has done a good job of publicity and there has been some in the Netherlands and Germany, but that’s about it. France is unofficially exempting those below the VAT threshold and Italy has failed to implement the legislation. The vast majority of affected EU businesses have still not heard about this legislation, which is why the UK is being so much more vocal than non-UK.
     
    The downside of this is that, in the UK, we’re crippling our smallest businesses in order to collect tax on behalf of other countries, who aren’t reciprocating with the same gusto, meaning the £300 million per year of ‘cherries’ that the UK government was promised for implementing this is unlikely to come our way.

Impossible Things To Do Before Breakfast, Including Complying With EU VAT

To help national governments and the EU to understand why their current, “there, there, dear” response isn’t adequate, we have been collating a list of aspects of the legislation that are ‘impossible’ or at best economically unviable and unreasonable, for micro businesses.

It’s a work in progress, as people start trying to comply, but here are five of our ‘favourites’ so far:

  1. Display the correct price.
    You don’t know where a customer is based until the final stage of the checkout process. The UK and some other Member States require you to display the VAT-inclusive price at all times. You can’t do this unless you know where your customer is and if you insist on them declaring their country before visiting your sales page, you’re likely to lose the sale.
    Even if you could get their country, the 90% of businesses below 100,000 € turnover use PayPal’s ‘buy now’ buttons, rather than a shopping cart, so you wouldn’t be able to display the correct price. It’s coded into the website page, not the shopping cart.
    Most micro businesses are having to bypass this by applying a best guess ‘fudge factor’ to cover VAT and then work it out afterwards. This causes UK and worldwide prices to go up unnecessarily, to compensate for Hungary’s 27%, and is already costing people sales because the digital market is so price-competitive. And it’s a completely unjustifiable level of admin for the sale of, say, a €2.99 e-book.
     
  2. Manually email, to bypass the VATMOSS rules, but actually get the email to arrive.
    We have already seen people whose Yahoo accounts have been blocked for spamming because manually sending a pdf to a stranger (a customer) multiple times a day sets off the spam alerts for the main free email providers. This effectively closes this person’s business until they can get their account unblocked. As requested, we will write to the key email providers for statements on this.
    Even if you can send the pdf, most incoming email servers automatically reject emails with large file attachments from people not in your address book or whitelist, because there is a high risk that these are from spammers or contain a virus file.
    So we have moved from instant downloads with happy customers to grumpy customers who have to wait for a manual email that may or may not ever arrive. Getting a reputation for spam can also cause your email address – and even your website server – to be blacklisted as a spammer, meaning you are then dropped from Google search results.
     
  3. Apply the correct rate of VAT.
    Most of these businesses use PayPal or other very small business shopping carts. Some of these CAN handle country-based VAT, but not until the final stage of the checkout process. And they can’t handle multiple rates per country. If you sell an e-book (with ISBN) and a pre-recorded course to a customer in Italy, the transaction requires two different VAT rates.
    If you sell that same e-book with a live webinar, then the e-book is taxable in the place of supply, but the webinar is exempt from the new rules and is taxable in the business’s country. So you could have two different countries in one transaction. Micro businesses are not set up to handle this level of complexity.
     
  4. Accurately collect the place of supply.
    Customers will quickly realise that, for example, pretending to be in Luxembourg gets them a discount. It is easy for a customer to declare a false address on a web page. It is also easy to use software to fake your IP location. As studies have shown this week, IP addresses are also incorrect in up to 10% of cases.
    And if customers buy during their lunch break at work, most companies use secure VPN instead of IP, so you wouldn’t get the IP data. It’s not available from mobile devices. So the customer’s declared address and the system IP address are not reliable pieces of data.
    And most micro businesses don’t have access to data such as the country code of the landline / mobile used for the transaction or the credit card bank details – and nor should they. These businesses simply cannot comply with the place of supply data collection requirements. And if the customer is buying after clicking an email link then they potentially never visit your website, so you have no way of collecting anything other than their PayPal account address.
    And there are huge concerns with them storing this data for 10 years.
     
  5. Get the Member States to agree on what ‘digitally-delivered’ means.
    The UK HMRC has been helpful and has issued clear guidance, clarifying it and adding definitions each time we have requested them. However, these definitions are quite different to those in, for example, Holland and Spain. In those states, the proportion that is ‘digital’ falls under the law and the proportion that is live doesn’t.
    In the UK, any product with more than minimal human intervention is exempt. A business cannot comply with the different definitions for each of the 28 Member States.

These examples illustrate some of the administrative nightmare that has now hit the smallest businesses, as a direct result of this legislation.

The next size up of businesses have had to fund website developers to create hugely complex shopping carts to handle it for them. But even for them the cost has been huge. One business I spoke to yesterday has just had to pay £100,000 to upgrade their server to handle the data processing needed by the hugely expensive EU VAT-compliant shopping cart they have had to develop. This is still a micro business (turnover < €2,000,000), so the compliance has been a huge hit for them this year. The biggest companies, such as Amazon and iTunes, were already geared-up for international sales, so this transition has been easy for them.

Ironically, a major side effect so far has been driving even more micro businesses into the arms of these 3rd party platforms, hugely cutting the micro businesses’ margins and increasing the profits of those whose behaviour drove the creation of this legislation.

If you have news from the first week of implementation or an idea for the ‘impossible things to do before breakfast’ discussions, please let us know at the EU VAT Action Campaign Group on Facebook.

If you’re not into Facebook, please tell us your news & ideas via the comments below.

Thanks!
Clare Josa & the EU VAT Action Team

Clare Josa, Mentor To Passionate World-Changers
Author of the Dare To Dream Bigger Entrepreneur’s Handbook.
 
>>> Contact The EU VAT Action Team <<<
http://www.daretodreambigger.biz/book