Executive summary

  • From January 2015, UK microbusinesses selling digital services directly to customers in the EU have had to comply with new VAT regime. VAT liability has switched from where the digital service is sold to country where customer based
  • Created significant administrative problems for our smallest businesses – hampering their ability to grow, and even making it difficult to continue for some
  • IPSE calls for EU-wide VAT thresholds to tackle this burden on our smallest businesses

What is VAT MOSS?

  • From January 2015, UK microbusinesses selling digital services directly to customers in the EU have had to comply with new VAT regime. VAT liability has switched from where the digital service is sold to country where customer based
  • An EU Directive from 2008 is precursor to this change. This was intended to tackle large companies avoiding tax by operating through subsidiaries in low VAT member states – such as Amazon funnelling its EU sales through Luxembourg.
  • All businesses selling digital services directly to consumers in other EU member states will however unfortunately be caught in this net, requiring data collection and accounting procedures which are not suitable for small businesses of this nature.
  • By registering for HMRC’s VAT Mini One Stop Shop (MOSS) service, individuals complete 1 VAT return and make quarterly payments which automatically cover all sales of digital services to EU customers. If you fall under the £81,000 annual turnover threshold, you will not need to charge VAT on sales to UK customers

What are the issues?

1. Admin burden:

  • 10 year record keeping requirements add an unnecessary administrative burden for our smallest businesses
  • To verify the customer’s location, sellers will be forced to collect two pieces of information (eg IP address of device, billing address, location of bank)

2. Unintentional consequences:

  • Regulations were intended to tackle large multi-national firms avoiding tax by operating through subsidiaries, but has instead made doing business more difficult for our smallest businesses

VAT thresholds

  1. IPSE supports EU-wide threshold at level of UK threshold (€114,000)
  2. We do however recognise this is tricky to implement, given many member states do not currently have any VAT threshold

Remove admin burden

  1. Any such threshold may take some time to come into effect, so we support interim “easements” in meantime
  2. This would exempt microbusinesses from some of most onerous requirements – eg 10 year record keeping

How will IPSE achieve success?

  • Continue to engage with HMRC’s VAT SME Forum to ensure that UK government aware of issues microbusinesses experiencing
  • Work with EFIP to lobby European policymakers to move towards VAT thresholds and “interim easements”
  • Gather experiences from members and other freelancers to show that the regulations are still proving onerous for our smallest businesses