Call for government action on new VAT regulations threatening South West micro-businesses

New EU VAT regulations designed to prevent multinational corporations from avoiding tax on digital sales in other countries are likely to have a devastating impact on some of the South West’s micro-businesses, claims the region’s Green MEP.

Changes in tax regulations, due to enter into force on 1st January 2015, mean VAT on digital products sold in the EU will be chargeable in the place of purchase rather than the place of supply. This will mean micro-businesses will forfeit their VAT exemption threshold by doing digital business in Europe and will have to collect VAT from up to 28 different EU states at 75 different rates.

To avoid registering in every country where someone buys their products, businesses are being offered a ‘Mini One Stop Shop’ (VAT MOSS) which means money will be distributed to the EU for them. However, this involves registering for VAT in the UK, despite the fact that many micro-businesses are VAT exempt. The process will involve submitting VAT returns on a quarterly basis, and determining where customers are located in order to determine the VAT rate that applies.

Dr Scott Cato MEP, who is an economist and passionate about promoting small business, is deeply concerned about the impacts of the new regulations.

“Traders in my constituency of the South West have been saying to me that they will be driven to operate only through whichever large multinational third-party platforms have the infrastructure to handle the new tax regime, and accordingly put up their rates or take a pay cut to absorb these costs – often on tiny profit margins. They will also incur additional costs in paperwork, bureaucracy, and amendments to websites and payment processing.

Dr Scott Cato is pushing for all small businesses across Europe with an annual turnover of up to €100,000 to be exempted from VAT. She said:

“Greens entirely support attempts to prevent footloose multinationals avoiding paying their fair share of tax. But in this case it appears that a piece of legislation aimed at the big fish has entangled a large number of our micro-businesses in the South West and might actually threaten their viability.”

Talis Kimberley-Fairbourn is Swindon South prospective Parliamentary candidate for the Green Party. She is also a folksinger, songwriter & sole trader. She said:

“Whatever ‘micro-business’ means in the corridors of power, to people running kitchen table enterprises, it’s not ten employees or a £2 million turnover. More likely it’s half an employee and a turnover of under £30k, £10k, or even £1k. This impossible administrative burden will drive some to the wall; people are simply going to stop trading.”

Molly Scott Cato has also challenged Business Secretary Vince Cable over how the Department of Business, Innovation and Skills has prepared small businesses for the change. She said:

“It appears that only those companies and traders who are currently paying VAT were informed, leaving many small businesses with no time to prepare. In spite of their repeated exhortations to our entrepreneurs to export to our European partners, it appears that the Business Department had no idea about how many small businesses were actually doing so and would therefore be clobbered by the new regulations.”

Ms Kimberley-Fairbourn concluded:

“This has come as a huge shock to the creative community – writers, musicians, artists and designers, who currently sell online through their websites and niche, third party platforms. We’re devastated. We’ve been overlooked at every level, and now we’re being legislated out of the marketplace altogether.”