A few weeks ago I wrote a blog, published here on the Huffington Post, a little bit different to my normal witterings. The reason for stepping outside my comfort zone, and writing about VAT of all things, was because I had become aware of new laws coming into effect on 1 January 2015 that looked set to put many micro businesses out of business. None of the media seemed to be talking about it (although plenty was being asked in forums on Facebook) so I thought I'd put it out there and set the ball rolling.
The post, along with a Twitterstorm that followed a few days later, helped raise awareness to thousands of people running their own tiny businesses, who had no idea of these new regulations. The petition I linked to in the post had a few hundred signatures at the time, but by last week it stood at over 11,000.
Thanks to that post, I ended up in contact with some business owners who were willing to make a stand. Through contacts, hard work, and pressure, a few of them were able to set up a meeting to talk with some major players in Westminster 2 weeks ago, and there they eloquently represented thousands of tiny businesses.
What they found out from this meeting was disturbing: The senior civil servants, politicians, and people who drafted the legislation do not understand how micro-level ecommerce works.
They believed that this law would only affect the kind of businesses who are already registered for VAT (typically those turning over at least £81k per year and perfectly well equipped to make changes to their accounting procedures and payment providers). They thought that anyone smaller would be using third party marketplaces rather than selling directly through their own website. Because of this, they did not bother to tell or consult with anyone apart from those registered for VAT. And that seems to be how, just a few short weeks from the legislation coming into effect, thousands of people in the UK and around the EU are only just now finding out about a law that is impossible for them to comply with. Because there's no way that with just a few weeks notice, an average sole trader can make the necessary changes to their business (and some will simply never be able to afford to). Especially since the payment providers most of us use are not yet compliant (and in some cases not even interested in becoming so).
At best, big businesses have been given a time advantage over micro businesses in complying with this new law. At worst, this legislation is basically a micro business killer no matter how much time we have to comply.
It was also clear from the Westminster meeting that the problem was not just with the UK's domestic implementation of the EU law, but with the EU legislation as a whole. It isn't just British politicians who don't understand the micro-level ecommerce sector in their own country - this same problem is occurring in most of the EU member states.
And so, the small group I'm in set itself up as the EU VAT Action Team, and we created a website - euvataction.org - where business owners can get all the information they need on the law as it stands, and to get involved with the campaign to get things changed.
Following the success of the 11,000-strong UK petition that called for Vince Cable to uphold the VAT exemption laws for British business, and realising we need to focus at the EU level, a new EU-wide petition was launched at http://chn.ge/1wyXUtU calling on Pierre Moscovici, the EU Commissioner for Economic and Financial Affairs, Taxation and Customs, to unilaterally suspend the introduction of the new EU VAT laws for micro-businesses and sole traders.
Meanwhile the EU VAT Action Team has been conducting an EU-wide quantitative research survey to assess the financial and human impact of the new legislation on micro businesses and sole traders. Thousands of small business owners have responded already. The initial results are shocking:
- Only 4% expect to be able to comply with the legislation in time.
- 60% of affected businesses sell direct to their customers, rather than through third party platforms such as Amazon or the App Store.
- 45% are going to have to make major changes to their business this month - either removing all EU VAT-liable digital products from sale or excluding EU customers altogether.
- 50% believe they won't be able to comply, at any stage.
- 20% will be putting up their prices to consumers, to cover the additional VAT and the administration / new software costs.
- Consumers will be hit by price rises and a reduction in choice, as many sellers will restrict the countries they sell to and stop their digital downloads.
- 10% are going to be closing their business completely in less than three weeks' time.
I am 100% sure that this is not what the EU intended. Somewhere along the line, the tiny businesses have been completely overlooked. We are not asking for the law to be scrapped; all we're asking is that a reasonable exemption threshold is applied, like in the case of current VAT laws, to ensure that businesses dealing in hundreds or the low thousands don't have to deal with the same corporate level tax bureaucracy as those turning over 6 figures or millions.
After all, the whole point of the EU Single Market is to bring down barriers and make it "easier and cheaper to do business across borders".
One of the EU VAT Action Team was able to talk to one of the top EU VAT legal brains today and it was clear from the discussion that trying to delay the legislation as a whole would be practically impossible. However, this person believes that the European Commission can't possibly understand the implications of this legislation on the tiniest businesses, and that if they had, they would have put provision into statute for an exemption threshold.
This is what we must now fight for.
Whilst we cannot change the law, we in the UK must get David Gauke MP of the HM Treasury to convince his EU colleagues that the problems we are facing are EU-wide.
They can then all push forward an amendment - this week - that creates a temporary exception (e.g. 1 year) to allow workable solutions to be found. This exception would be for the VAT-MOSS threshold to be aligned to the VAT threshold for each country.
So please, we need support across the EU for this. We need people in every EU member state to write to or phone your MP / MEPs / HM Treasury equivalent, and insist that they ask the EU Commissioners to push through an immediate exception on the rules for businesses and sole traders below your country's VAT threshold. This must be done prior to the January 1st deadline and will allow a full impact study of the unintended consequences to be carried out, and reasonable, workable solutions to be found. It will have most impact if you can also explain in your letter exactly how this will devastate your business and others like yours.
Please write that letter or email. We need hundreds of letters going to each country's EU Fiscal Attache in the next couple of days to prove to them that this is an EU-wide problem, not just a UK whinge.
This is our chance to stand shoulder to shoulder with our fellow business owners across the EU and to show the European Commission what a single market is really about.