Molly Scott Cato MEP has welcomed news that the European Commission is likely to follow Green advice and introduce a VAT exemption for all micro businesses with a turnover of less that €100,000. Commissioner Ansip who is responsible for the Digital Single Market Strategy, has said he wants to introduce the threshold to match the £81,000 exemption in the UK.

Molly Scott Cato has challenged the Commission for several months over new European VAT rules which are designed to prevent multinational corporations from avoiding tax on digital sales in other countries. However, the rules are having a devastating impact on some of the South West’s micro-businesses. The changes which came into effect at the beginning of the year mean VAT on digital products sold in the EU is chargeable in the place of purchase rather than the place of supply. This means micro-businesses are obliged to collect VAT from up to 28 different EU states at 75 different rates. Molly Scott Cato says she will now keep up the pressure both on the Commission and the UK government:

“I welcome the fact that the Commission looks set to follow our recommendation on an exemption for businesses with a turnover of less than €100,000 across the whole of Europe. We now need to ensure this is brought about as quickly as possible, as it is clear that these rules on VAT are hitting small businesses selling digital services online very hard.”

HMRC had originally estimated that just 5,000 small businesses would be hit by the new rules. However, a VAT taxation report published recently revealed about 250,000 digital businesses have been affected. Dr Scott Cato also believes there have been failures at a political level. She said:

“Discussions with the Commission have made clear that the option to exempt small businesses was made available in previous negotiations under a Labour government. Labour has failed small businesses by neglecting to take up this option. Meanwhile the UK Tory-LibDem government would have known that this was coming, and should have done more to prevent the difficult situation which many small businesses now find themselves in.”

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