200 firms quit within days of new VAT rules
MORE than 200 small firms have stopped trading due to new European VAT rules originally aimed at curbing tax dodging web giants.
The companies say they have been forced to abandon trading because the rules have proved too complex, and campaigners are calling on the Government to suspend implementation of the legislation which took effect on January 1.
The rules require anyone selling digital products or services, such as ebooks and computer software, to charge VAT at the rate that applies in each customer’s country. But campaigners say the burden is too onerous for small firms exporting to a number of different EU markets, despite efforts by Revenue & Customs to set up a simplified VAT registration system to help them.
Many of the firms in question are so small that they have never had to register for British VAT before.
Clare Josa, founder of campaigning website EUVATaction.org, said: ‘We need the Government to suspend implementation of the legislation. The unintended consequences are devastating for hundreds of thousands of micro-businesses and if we wait for the European Commission to process legislative change,
then far too many small firms will have closed or ceased selling digital products, which will damage their trade.’
She added: ‘Businesses below the UK VAT threshold weren’t considered by the EU – or by the UK – during any of the impact assessments over the past six years. This, combined with the business-wrecking consequences and near-impossible administrative burden, should be enough justification for the Government to show leadership and protect British firms and sole traders.
‘We’re working with a number of MEPs to assist them with their campaigning, but this will most likely be too slow for many businesses.
‘Despite the concessions our campaign has gained from HMRC, such as being able to keep the UK VAT threshold for domestic sales and a light touch from the taxman during the launch phase, we have already had contact from over 200 people who have confirmed they have had to stop trading because they couldn’t comply with the legislation and didn’t want to break the law. We also have scores of non-EU businesses who have now closed their doors to EU trade to avoid the new rules.’
A petition on EUVATaction.org calling for ‘a unilateral suspension of the introduction of the new EU VAT laws for micro businesses and sole traders’ has more than 14,000 supporters. The Facebook group Digital VAT 2015 has more than 3,000 members.
Meanwhile, small businesses continue to vent their frustrations on Twitter. @Combatlab1, a seller of training manuals for Russian martial arts, tweeted: ‘This may close down my business. It is unworkable.’
Annabel Kaye, founder of employment law firm Irenicon, said: ‘This really hits women working from home who have businesses designed to help support their families, and anyone who is disabled or a carer.
‘These tiny businesses are way below the EU radar for consultation – but not, it appears, for compliance. If you combine this with the changes to working tax credits, you see a devastatingly difficult set of changes for the people who are least able to cope. And it seems very unfortunate to target those who want to work and are working.’
John Walding, of support group the Forum of Private Business, said: ‘Outside of tax expert circles, there is a relatively low awareness of the impact of these changes, which means that businesses may unknowingly find themselves in breach of the new rules.
‘These changes couldn’t have come at a worse time for many small businesses and their accountants, who are busily working on tax returns.’