One of the biggest barriers we have come up against on EU VAT over the past six months is everyone’s hope that a ‘simple tech solution’ will fix everything – and make this scary VATMESS go away. We have had politicians use it as an excuse for not asking the EU to suspend implementation. We have had financial journalists use it as an excuse for not covering the story. And even the UK’s Downing Street told us their ‘preferred option’ was that Tech City would save the day – many months ago – yet still there is no sign of a solution.
The problem with all this talk about tech
You know what it’s like when there’s something you really don’t want to have to do – that might be awkward, difficult or even embarrassing, and if someone offers you the suggestion of a future way round it, what are you likely to do? Yup. Sit and wait for the ‘future way round it’, clutching at those straws of promised hope, no matter how painful the present situation is.
That’s what is happening with talk of an EU VAT tech solution: the key decision-makers who need to find a way to get the disproportionate burden of this legislation lifted would much rather do nothing in the hope that the tech world will get them out of the hole, without them having to ask awkward questions and make requests of the EU decision-makers that could cause problems. Remember: each and every EU Member State agreed to this legislation and passed it to be used in their home country – so all of our politicians are jointly responsible.
Raising hopes of a ‘simple tech solution’ distracts from what is really needed
We shouldn’t be trying to sticky-plaster broken legislation with complex technology. We should fix the legislation first. Then the tech solution becomes much simpler and more robust.
The more we waste time focussing solely on technology (we’re not saying it couldn’t be PART of the fix), the harder it is to get the key decision-makers to talk about thresholds to remove the EU VAT burden from the smallest businesses – and simplifying the rules from the ground up to make them workable for larger businesses.
In other words, the more time we spend looking only at tech solutions, the longer it is going to take until your business is out of pain.
And another thing… Your ‘safety net’ is about to be removed.
Most businesses have managed to keep trading by geo-blocking (now an epidemic), by adding enough ‘human intervention’ to stay outside of the legislation or by dropping digital products.
However, these safety nets will soon disappear. EU Commission VP Andrus Ansip has officially announced that VATMOSS will be extended to all online sales (i.e. even those with more than minimal human intervention or that would currently be considered non-digital) and that he wants to prevent geo-blocking, perhaps as early as 2016.
So the need to reform this legislation and give a sensible threshold is more important than ever.
The challenges with a ‘simple tech solution’ approach:
Finding a solution that is partially compliant is easy – there are many of them out there. And we are HUGELY grateful to those who have developed them. And for SOME businesses they will suffice. However, we are not currently aware of any tech solution that is fully compliant and readily-available to small businesses, to work with all platforms, systems, shopping carts and business types.
And remember: the business is the one liable (and could be prosecuted by 27 other Member States) for the penalties if a tech solution misses a customer or makes a mistake, not the software creator.
One small business organisation even organised a ‘Hackathon’ to spend the evening finding a tech solution this week – again distracting people from the real issues with the hype of hope. We’re grateful to them for trying to find a solution, but realistically, if a tech solution were so incredibly simple it would surely have been created at some point over the past 8 years? Businesses are closing or shelving their digital product plans every day and we cannot afford to keep waiting, hoping for future tech answers.
And any future tech solution will only be as good as the brief given to the developers. Otherwise they are just wasting time and hope by creating yet another partially-compliant solution. Read on to find out how complex that brief would need to be…
George Palmer from SendOwl (an eCommerce platform for digital product sellers) says about creating a one-size-fits-all tech solution:
“It’s like trying to take an engine from one manufacturer and make it work in any car in the world. You’ve got different connections between the engine and vehicle, different bonnet sizes and the cars are designed for different things. So even if the engine works on its own, it’s of no use if you can’t put it into your car.
“It’s the same with an EU VAT plugin. It might well be able to work out the correct EU VAT rates on its own, but if you can’t plug it into your eCommerce system, it won’t help you.”
Rachel Andrew, a core member of the EU VAT Action team, and an international speaker in the technology world, reminds us:
If you build a bespoke solution for your business, as we did, then you can ignore any part of the requirements that don’t apply to you. For example we don’t need to worry about multiple VAT rates, we don’t sell anything that attracts a reduced VAT rate. We don’t have mixed physical and digital product sales. That meant we could cheerfully ignore writing the code to deal with multiple possible VAT rates and products at different VAT rates.
If you try and create something that is for all possible types of business, you have to fully comply with the entire legislation.
Therefore any general software solution must:
- be fully compliant with the huge complexities of the legislation
(we are not aware of any fully-compliant solution that doesn’t require hiring a programmer to integrate it or that integrates with the entry-level software systems used by most micro businesses) - work seamlessly with all website platforms, shopping carts, payment providers and membership systems
(it is not reasonable to insist that a business change its entire website order processing system in order to comply with this legislation – that can cost hundreds of hours and many, many thousands of pounds to do and could close down a small business. There are potentially thousands of permutations of system components the software would need to interface with.) - be able to display the correct price to customers at all time, without forcing registration and login
(that causes a massive drop in sales, even for repeat customers) - be able to handle the complex data processing required, without crashing shared hosting servers due to data loads
(this has already happened and one micro business told us they had to spend £100,000 on a bespoke server to handle the additional data processing – even Amazon has struggled with this) - not add in any extra steps to the checkout process
(this is proven to dramatically increase cart abandonment) - be able to reliably identify B2B customers
(including checking VAT number validity) and handle them appropriately, including reverse-charging the VAT, without causing a drop-off in B2C sales - only include 1 piece of customer self-declared data
(for example, on PayPal this counts as the customer’s account address, so an additional drop-down box for country would not be valid) - have a workable solution for when the customer location data is contradictory
one which does NOT include refusing the transaction, because this angers the customer and damages the business’s reputation - be as simple to add to your website as a PayPal ‘buy now’ button
allowing it to be installed by small business owners who do not have the back-up of a tech team and cannot afford a programmer - be as close as possible as free to use
(it’s not fair, for example, for a business to have to pay a fee for all domestic and non–EU transactions, just in case they make a handful of non–domestic EU sales – one business incurred low-level €0.20 fees per transaction and ended up paying 10 times as much in fees as the EU VAT she collected). The cost of compliance must be reasonable and proportionate, given that many of the potential users are still selling mainly to a domestic market. - be able to handle the fact that even the EU Commission admits that IP addresses are unreliable
(even the EU Commission reports accept they are max 90% accurate and consumers are regularly masking their IP address and even committing IP address fraud or browsing anonymously) - automatically update the correct rates of VAT
in real-time, across the EU, to audit levels of accuracy - be able to figure out which rate of VAT to apply
to each kind of product a person sells – and they may well be different for different products – in different countries (for example Italy has 2 different rates even for e-books, depending on whether they have an ISBN) - be able to handle multiple rates of VAT per transaction
and even 2 countries of supply in a single transaction (both surprisingly common problems) - produce the correct data for VATMOSS reporting so that Member States don’t pursue businesses for rounding errors
(as Sweden did to a UK business last week, over a <€5 error), including separating out B2B sales appropriately - produce the correct reporting format for VATMOSS returns
so that businesses know their software figures won’t be different from their VATMOSS figures – this has been a major problem for many businesses so far, especially once you work in variations in currency exchange rates - produce the correct figures for a UK or other Member State domestic VAT return
so that the business doesn’t have to do their VAT analysis twice - issue the correct format of VAT receipts to customers
for the Member States that require them, in the correct language and currency - be able to handle the complexities of exchange rate variations between the rates required for Member State & VATMOSS reporting, vs the much less favourable rates used by credit card processors (and hence the actual amount received by the business).
Sweden disputed a €4.60 discrepancy with a UK business this month, so the potential for a business to be pursued by all 27 Member States over rounding errors and currency exchange discrepancies is huge. This fear would stop many businesses from selling digitally, even if there were a tech solution. - be able to safely store the confidential customer data for 10 years
in accordance with the data protection rules in each individual Member State - have full customer tech support (usually the most expensive part of offering a tech solution)
so that low-tech businesses can easily figure out how to use it - be almost free to use
even something as low as, say, a 20p fee per transaction mounts up if you’re only selling 99p downloads – and if you’re charged this even on domestic transactions (sometimes the case), then the cost to collect non-domestic EU VAT can massively out-weigh the actual VAT collected
This list may not be exhaustive, but it is a good start.
Can you imagine being a top developer and working incredibly hard to create a simple solution for something so hugely complex, and create the dedicated customer support functionality needed to help non-tech-aware businesses, only to be told that your customer businesses can’t afford to pay you more than peanuts for it?
Don’t get us wrong – we’re not anti any tech solution. It would be incredible if a simple, reliable, affordable and flexible tech answer were suddenly to become available. As a campaign team, we could crack open the Champagne and go back to actually seeing our children and being able to work on our own businesses again 
But it’s time to stop praising the Emperor’s New Clothes and using potential future tech miracles as an excuse for not taking action to protect micro businesses NOW. It’s time to agree that it is probably easier to reform the legislation than it would be to find a simple piece of technology that can handle something so massively complex.
What can you do to make a difference?
Again – it’s about writing to the decision-makers. And visiting them in person, if you can.
Our people-on-the-inside are telling us that we will only reach the urgently-needed tipping point by keeping the pressure on – even if we feel like we’re being boring and repetitive.
Please write to your Member of Parliament and your representatives in the European Parliament, reminding them how this legislation is hurting your business, and explaining that, for most of us, there is no simple tech solution, so we need the EU to immediately suspend this legislation for micro businesses, while the laws are renegotiated.
And please come and join us over at the friendly and helpful Facebook group: EU VAT Action Campaign Group
Thank you so much for your support – and please let us know via the comments which actions you will be taking to help keep this problem top-of-mind for the key decision-makers.
Thank you!
x Clare & the EU VAT Action Team
