GREEN MEP and economist, Dr Molly Scott Cato, has called for a Europe-wide VAT exemption for businesses with a turnover of less than €100,000. The call comes in the wake of new European VAT rules which took effect on 1st January and threaten the viability of thousands of micro-businesses across the UK [1].
The new regulations are designed to prevent multinational corporations from avoiding tax on digital sales in other countries, but are having a devastating impact on many micro-businesses and sole traders involved in digital sales to Europe. 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 or so different rates.
Dr Scott Cato has written to both Business Secretary Vince Cable, challenging him over his department’s failure to help small businesses prepare for the changes, and to EU Commission Vice President Andrus Ansip, who has responsibility for the Digital Single Market [2]. Dr 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 who run micro businesses or are sole traders are telling me that the new rules make their business unviable. It is tragic that the entrepreneurial approach shown by so many should be undermined by a policy which, while having laudable aims, has such serious flaws.”
Many of those who run micro-businesses or are sole traders have welcomed the interventions by Dr Scott Cato. She said:
“I have been really impressed by the way micro businesses 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 selling digital products 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.”
Notes
[1] Latest updated guidance from HMRC on the new VAT rule change: https://www.gov.uk/government/publications/vat-supplying-digital-services-to-private-consumers/vat-businesses-supplying-digital-services-to-private-consumers
[2] http://ec.europa.eu/priorities/digital-single-market/index_en.htm