Greens welcome Commission U-turn on VAT exemptions for digital micro-businesses

Molly Scott Cato, Green MEP for South West England, has welcomed the U-turn by the Commission on the question of the exemption from VAT changes that have been so destructive to small digital businesses in the UK. Dr Scott Cato was the first British MEP to take seriously the threat to small businesses from the VAT changes introduced on 1 January and has repeatedly lobbied the Commission to make such a change.

The new regulations were designed to prevent multinational corporations from avoiding tax on digital sales in other countries. However, the changes have had a devastating impact on some of the South West’s micro-businesses and mean that VAT on digital products sold in the EU are 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.

News of the change of heart by the Commission came in response to a written question sent from Molly Scott Cato’s office. Mr Moscovici, European Commissioner for Economic and Financial Affairs, Taxation and Customs, said that the Commission was working to minimise burdens attached to cross-border e-commerce arising from different VAT regimes and to introduce a VAT exemption threshold for start-up companies in respect of their EU sales. Dr Scott Cato said:

“I am delighted to hear that the commission is now planning to offer a life line to the small businesses who sell digital products and services across the single market. The VAT changes were heavy-handed and poorly thought through. It was dreadful to see new and promising small businesses being so negatively affected and I am glad they look set to be exempted from the VATMOSS system. I am aware, however, that this news comes too late for many small businesses, and will continue to press for them to be compensated.”

Talis Kimberley, who runs a digital micro business based in Swindon, said:

“This is very promising indeed – but micro-businesses need that threshold now, and it should not be limited to start-ups but should include tiny businesses however long-established.

“I’m grateful to Molly Scott Cato for taking this up and working to help the thousands of people affected by these changes brought in almost a year ago. There are a great many micro businesses which are apparently invisible to those who created this legislation. Sadly, many such businesses have been forced into the arms of larger platform; to constrain their geographical sales, or in some cases cease trading altogether.”