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Micro-businesses are obliged to collect VAT from up to 28 different EU states at 75 different rates.

As the new Conservative government seeks to portray itself as the party of business, Green MEP, Molly Scott Cato, has launched a stinging attack on its business friendly claims. Citing a five month delay in responding to a query about the impacts of new EU VAT regulations on micro businesses, she accused the government of belittling an issue of vital importance to the viability of small businesses and treating her and her constituents with contempt.

Dr Scott Cato wrote to the former Business Secretary, Vince Cable, last December to highlight the damaging impact new VAT rules are having on small businesses; she was the first elected politician to raise the alarm about this issue. It has taken five months for the government to respond, a delay that Dr Scott Cato believes is politically motivated:

“Many constituents have told me they have been hit hard by these new VAT rules. In the five months it has taken for the government to respond to my concerns, some micro-businesses have become unviable and have ceased trading. The new government is busy painting itself as being on the side of small business while Labour is agonising about whether it is business friendly enough. But delay in responding to these important concerns shows that when Labour and Tories say business they mean corporate transnational business and that in reality they have neglected the small businesses that are the backbone of our communities.”

New VAT rules, introduced in January, were designed to prevent multinational corporations from avoiding tax on digital sales in other countries. However, the rules have had a devastating impact on micro-businesses. The changes 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 was the first politician to take up this issue and has lobbied for a small business exemption at EU and national level.

Last week the European Commission announced plans to include a VAT exemption for small businesses, as called for by Dr Scott Cato, but this will not be introduced until 2016. Molly Scott Cato is highly critical of the failure of the Westminster parties to stand up for a small business threshold when the VAT rules were originally agreed. She said:

“I am deeply concerned that the proposal comes too late for many businesses that have already closed down their digital operations in other countries as a result of poorly thought through legislation. In future I would like to see policy-makers consult fully with the small business community before introducing policies that can so fundamentally affect their viability.”

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