MEP calls for Europe-wide VAT exemption for micro-businesses in wake of new tax rules

Micro businesses in the South West have expressed deep concern at new European VAT rules which take effect today [1]. Constituents’ worries over the new regulations have prompted the region’s Green MEP, Molly Scott Cato, to write a letter to EU Commission Vice President Andrus Ansip, who has responsibility for the Digital Single Market. In the letter she outlines the concerns of constituents who run very small businesses and calls for a Europe-wide exemption for businesses with a turnover of less than €100,000.

The new regulations are designed to prevent multinational corporations from avoiding tax on digital sales in other countries, but are likely to have a devastating impact on some of the South West’s micro-businesses. The changes mean VAT on digital products sold in the EU will be chargeable in the place of purchase rather than the place of supply. This means micro-businesses will now be obliged to collect VAT from up to 28 different EU states at 75 different rates. Molly Scott Cato said:

“Some of the smallest businesses simply had no idea that this change was on the horizon, and have not been able to prepare. Even if they had known early enough, the complexity of the administration required puts many businesses at risk; many constituents are telling me that the new rules make their micro businesses unviable. It is tragic that the entrepreneurial approach shown by many in the South West should be undermined by a policy which, while having laudable aims, has such serious flaws.”

Dr Scott Cato, an economist, points to the fact that small businesses are responsible for the creation of at least 80% of jobs across the European Union. She is calling for an exemption for businesses with a turnover of less than €100,000 across the whole of Europe:

“I have been really impressed by the way my constituents have taken such a positive approach to the single market and to selling their digital products across Europe. It seems to me that the simplest way out of this situation, and for these businesses to continue to be viable, is to allow countries the option of introducing an exemption for businesses with a turnover of less than €100,000,” said Dr Scott Cato.

[1] Latest updated guidance from HMRC on the new VAT rule change.

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