Dear Representatives, MPs, MEPs & Commissioners,
I am writing to you concerning the unconsidered impact of the new EU VAT rules on digital micro businesses and sole traders.
I am a freelance illustrator, and part of my income is generated by distributing, advertising and selling my illustrations online. As with most self-employed people, my income has never approached the UK VAT threshold, and the scale of my activities means that registering for VAT voluntarily represents an increased administrative burden for myself, and unattractively inflated prices for my customers and clients.
As with many other digital sole traders, I work in a field with little to no professional support, and so it is only due the website http://www.euvataction.org/ and their work on twitter that I have been made aware of these new rules, long after they have been deliberated, agreed upon, and are about to be enacted.
Since news of these rules has reached the online community, many affected individuals have dedicated their time to researching the unconsidered impacts, and their findings include the following conclusions:
- Most of the smallest businesses cannot comply with the legislation because they can’t collect the required 3 pieces of location evidence. 90% are using basic PayPal buttons and the most they will be able to get is the customer’s account address.
- Most can’t display the correct price on their sales pages because they don’t know where the customer is until after they have purchased, so have no way of applying the correct VAT rate during the purchase process.
- Even if they could code the VAT rates into their payment solution, most platforms offer just one rate of VAT per country. It is very likely that some transactions will require two rates, for different kinds of products. This is not possible for the smallest businesses to manage during the checkout.
- These businesses don’t get any of the data until after the transaction, so it creates a massive administrative burden of manually checking each transaction and then going back to a customer if the data looks incorrect, then analysing and storing the data to complete their VAT-MOSS return.
- Case studies show that each EU Member State’s interpretation of what is a ‘digitally-delivered service’ is different. Even if you comply with your own Member State’s interpretation, you could still be prosecuted by another Member State if the interpretations differ.
- The legislative assumption was that most businesses sell through 3rd party platform. This quantitative study shows that it’s only 40%https://docs.google.com/forms/d/10GWseoeGY46uW1bXsRVyKODCnwDq6o0Ubx6uimqs7TE/viewform The Commission now understands that most of the 3rd party platforms only heard about the new EU VAT rules in November 2014 and will be unable to comply by January 1st.
- Whilst the rules nominally target large businesses like Amazon, in an attempt to force them into paying their fair share of VAT, they will have the corollary effect of forcing self-sufficient micro-businesses to start trading through 3rd party platforms that companies like Amazon run.
- Last year, a report from the National Institute of Economic and Social Research concluded that “The [UK] digital economy is poorly served by conventional definitions and datasets”, suggesting that the digital economy is significantly undercounted. http://niesr.ac.uk/publications/measuring-uk%E2%80%99s-digital-economy-big-data#.VJK8FCusXdP
- The office of national statistics reports that there are 4.6 million self-employed and sole traders in the UK.http://www.ons.gov.uk/ons/dcp171776_374941.pdf The proportion of these sole traders dealing in digital products has not been properly researched.
- Given these two facts, the number of businesses affected by these rules has in all probability been sorely underestimated by HMRC, who estimated that 34,000 SMBs would be affected:https://www.gov.uk/government/news/digital-services-suppliers-urged-to-register-for-new-eu-vat-service
- Within the UK, the ability of VATMOSS to cope with the sudden flood of sole traders who will be forced to register is in question: https://gdsdata.blog.gov.uk/vat-mini-one-stop-shop-service-assessment/
- The ICO will be inundated with new applications from sole traders who will need to register as data processors and controllers in order to comply with international law. The results of the extra burden upon an already-stretched organisation have not been considered or researched officially.
As a sole trader with years of experience selling online, it has been clear from the outset that my business will be profoundly affected by these rules, and that the findings of others in my situation support my personal conclusions.
Since September this year, I have been redeveloping my website with the goal of expanding the scope of my business by including the sale of digital downloads, and opening certain pages to advertisers. However, these new rules mean that such a venture could completely cripple my ability to trade effectively, and as such I may be unable to capitalise on months of hard work. I have also heard that this rule could apply to physical products as early as 2016, which would force me to cease trading altogether.
These rules represent a crushing barrier to the growth and diversification of small digital businesses. Micro businesses looking to expand will be forced to pass through a period of growth during which they are disproportionately affected by the unrealistic administrative burden represented by compliance with the new EU VAT rules – a situation directly at odds with the EU’s goal of innovation within the digital sector.
On behalf of all sole traders and businesses affected by these rules, I support the following actions:
- In the short term, an emergency exception to allow the implementation to be suspended for micro businesses and sole traders for 1 year, whilst workable solutions are found.
- If this cannot be agreed before January 1st, then an emergency exemption to allow acceptance of the customer’s self-declared address as proof of place of supply for micro businesses and sole traders who don’t have access to the required 3 pieces of evidence (the 3rd being needed for the cases where the first two conflict).
- In the medium term, an income threshold to be applied to the rules in order to protect the growth of small digital businesses.
- In the long term, a complete review of the rules, and an alternative solution that effectively targets large businesses who dodge VAT, without unduly burdening micro businesses and sole traders, or forcing them to trade through platforms provided by those same large businesses.