(Updated 13th December 2014, update at end of story): A new pan European petition protesting at the implementation of new VAT rules aimed at large corporations avoiding paying tax in the countries they trade has just been launched.
I hope you will consider signing it, because the tax changes that come into force affect both creators and fans across the EU – and not in a good way.
Created by the VAT Action Team, it calls for a unilateral suspension of the introduction of the new EU VAT laws for micro businesses and sole traders such as independent comic publishers.
If the legislation as currently outlined is allowed to come into force on 1st January 2015, the changes will create a #VATMESS – unfairly disadvantaging the EU’s smallest businesses – and many are already giving up in fear of the demands of the new regulations.
In the UK, the changes mean even the smallest ebusiness selling goods in other countries will have to register for VAT even if they never earn more than the high threshold; will have to pay an annual fee to register under the Data Protection Act and keep records of sales for 10 years; and ensure buyers provide proof of purchase address to fulfil VAT requirements.
As we previously reported, government seemed to think the changes would only affect a few people in the UK – but Digital Arts argues the changes mean even the smallest small press comic creator will now have to register for VAT – and keep records of sales for 10 years.
Enterprise Nation also reported that Tom Gatten, founder of big data analysis firm Growth Intelligence, suggests the number of those affected is likely to be upwards of 264,000 businesses.
Although the changes initially impact on digital sales – and under EU legislation, you cannot restrict their sale, so only selling in the UK is not an option – in 2016 the changes will be extended to the sale of physical goods.
Many independent comic publishers sell through platforms such as Amazon, Comixology (owned by Amazon), Comicsy, PressPad, Scribd, DriveThru – some apparently not entirely ready for the changes just weeks before they come into force. But others selling, for example, PDFs of their comics through their own web sites to avoid sharing revenue with big companies now face the brutal truth that all ‘sole traders’ will have to abide by, and work to, the same onerous level of bureaucratic record keeping expected of major corporations, with none of their resources.
“For many, this leaves comic creators/digital micro-businesses with three options,” notes comic creator Joe Glass over on Bleeding Cool. “Sign up to potentially 75 different VAT regions subject to each individual returns, checks and VAT amounts (leaving themselves open to potentially hundreds of hours of paperwork and administration and countless amounts of red tape); sign up to VAT MOSS and forfeit their right as a small business with low earnings to be exempt from VAT on their UK sales; or stop selling digital comics/products to EU states if able to restrict sales based on sellers location [You can’t – see HMRC comment at the end of this article – Ed] or, if this is unavailable, stop selling digital products completely.
“…If they decide options one or two, certainly they’d have to increase prices or eat the costs themselves, potentially costing some out of business,” he notes. “Sadly, most are seeing option three as their only option, stopping digital comics sales from their individual stores to the EU or entirely.
“Which sucks. Firstly, if I were able to restrict sales to EU nations, it flies in the face of the message of inclusiveness and representation of The Pride. Secondly, digital comics sales have played a big role in getting me and my comic where we are today; with a low price point and no postage to worry about, many of my audience opted for this product, and it?s spread the word and audience of my comic on a global scale far surpassing anything I could achieve from just a presence at UK cons.”
Government Solution No Solution?
The UK government’s solution to the changes – HMRC’s Mini One Stop Shop scheme (MOSS) – was designed to stop small firms trading digital products from having to register for VAT in 28 countries.
However it will impose VAT registration on all affected firms regardless of their turnover and will make them report separate detailed quarterly UK VAT accounts and EU VAT transactions or face penalties. (Their latest guidance is here).
Some people have even had problems finding more about the HMRC’s One Stop Shop…
Reports of recent meetings with HMRC officials in the UK indicate government has, until recently, been genuinely unaware of the impact the new regulations will have on small business and their 18 month long PR campaign to raise awareness of the new legislation has in the main been targeted at companies and sole readers already registered for VAT.
Sadly, subsequent ministerial statements and the lack of public comment by ‘Freelance Tsar’ David Morris, MP for Morecambe and Lunesdale, don’t reflect what appear to be genuine efforts to resolve the impending disaster for small business. Some entrepreneurs have called on Business Secretary Vince Cable to resign after his repsonse to an earlier 10,000 signatory petition on the change.
“The changes to VAT on digital products is not new or sudden,” the minister claimed. “The change was agreed in 2008 and we’ve done a lot to communicate it to businesses. Regardless, the majority of UK micro-businesses will not be affected.”
“It’s a brush off, based on the original, now thoroughly discredited assumptions that got HMRC into this mess,” commented Juliet E. McKenna, creator of the Digital Microbusiness Action Group, said: because they simply had no idea how much e-commerce goes on at the most direct and small scale levels within the UK economy.”
Creators and Fans Affected Alike
Many one-person businesses selling comics online have been caught on the hop by the rule changes which bring corporate levels of regulation and administration not just to the Boardrooms, but also to the kitchen tables of sole-traders.
Hundreds of thousands of the smallest businesses across the EU are faced with a stark choice at the end of this month – either to close their cherished businesses or to break the law.
“That is not a reasonable choice to force them to make,” say campaigners, urging a number of actions they should take in protest, including signing the petition.
“Whilst the majority of us support the intention of this new legislation, designed to put a stop to billions of euros of the consumer tax being lost due to multi-nationals locating in low tax jurisdictions, the implementation of these rules will cripple, and potentially force into closure, hundreds of thousands of micro-businesses across the EU.
“The costs in paperwork, bureaucracy, and amendments to websites and payment processing will simply mean that many businesses are no longer viable.”
if you think you don’t need to be concerned because you sell physical products rather than digital services, then think again. This is just the first wave of legislation – You are next in the EU’s sights. Similar rules are planned to extend to all products as early as 2016, eradicating any distance selling thresholds you currently enjoy.
The European Commission argues that this will create a level playing field because means that sellers will no longer be able to unfairly undercut by businesses by locating themselves in another EU member state with a lower VAT rate – but in reality, argue campaigners, it will unfairly disadvantage the EU’s smallest companies; creating a divide between the multi-national companies who can afford to comply with this complex and archaic piece of legislation and those sole-traders and micro-businesses that simply can’t.
Data Security Risks
Still don’t think this affects you because you aren’t a business owner? Not only will the range of products available for you to buy be greatly diminished, but the information collected by those businesses that do survive needs to be retained for 10 years – creating a huge data security risk for us all. Where currently you only have to worry about your payment provider/card handler storing your personal data, going forward millions of small businesses across the world will now have a requirement to do so.
“The opportunities offered by the digital economy have been a lifeline to hundreds of thousands of people,” say the VAT Action Team. “Mothers, carers, chronically ill, people with disabilities, retirees and so on, who would otherwise not be able to go out to work in a traditional pattern and have created flourishing and innovative businesses from their kitchen tables.
“What The EU Commission doesn’t seem to recognise is that closing this avenue of business will crush the microbusiness community – in the process costing governments far more in welfare payments than the small amount of consumer tax they would ever raise from these businesses!
“At a time when the European Commission is trying to lower trade barriers for the world’s largest businesses, they are putting up trade barriers for the smallest ones, thereby stifling innovation and creativity in small start-ups who could be leading the way and taking advantages of new opportunities in a growing digital market place. ”
If you’re a comic creator or buyer, it’s now vitally important that we all make the EU to realise the impact of these new regulations before it is too late and they have completely destroyed the EU’s sole-trader and micro-business community.
I hope you’ll consider signing the petition and support this campaign for the sake of our independent comics publishers (and others). There does seem to be concern from government departments at how these changes are going to affect small business, despite Vince Cable’s response and the lack of a public one from David Morris that we’re aware of.
“We have had discussions with a senior member of Vince Cable’s team throughout the past two days and the Department is sympathetic towards our cause,” says campaigner Clare Josa of Beyond Alchemy earlier this week.
Thanks for reading this far – I know this is all a far cry from our usual comics coverage, but it is very important.
UPDATE 13th December 2015: HMRC promised they would be putting out a further statement on this matter, which they said would clarify things and update UK businesses on some real concessions which would make life much easier for us. For those of you who haven’t seen it that statement was released today and can be found here: here .
Unfortunately, this does not solve the issue at all. In fact, it would appear that despite such a positive meeting with HMRC, HM Treasury and David Gauke MP last Thursday, and the VAT Action Team’s best efforts since then, there is still a significant gap in understanding of small businesses situation on the part of HMRC and no meaningful progress has been made.
“We, like you, feel hugely disappointed that last week’s HMRC meeting promises were presented to us again today, apparently as ‘new news’,” say the campaigners. “And they have still singularly failed to grasp that, far from not wanting to comply with the legislation, we simply CANNOT, due to the requirements for the proof place of supply.
“We are hearing, daily, of businesses that will close their doors at the end of this month. We understand how you feel. We are not giving up though!
“We need to ramp up the campaign to a new level and we need your help to do so. Please come and sign the new EU-wide petition we have started and then please come and visit our new EU VAT Action website to see how else you can help!”
• Check out the VAT Action Team web site to see what you can do in the UK to campaign against the changes
• Write to your MP and your MEPs (even if your MP is “Freelancer Tsar” David Morris, who does not reply to Twitter questions despite his Prime Minister-appointed role). It’s especially important for anyone in the non-UK EU to write to their MEPs, because we need to raise politicians’ awareness outside of the UK, for them to want to address this problem. The UK can’t change European VAT law on its own
• “Is the only solution to block all sales from EU countries?”
It looks like a solution (which is not great for business of course) – but HMRC responded to this query from a sole trader as follows:
Thank you for your questions following the Twitter clinic.
At this stage I think it is right to point out that, whilst refusing to sell has no specific VAT consequences and refunding proceeds effectively cancels a transaction, there are EU Single Market rules that forbid discrimination between service recipients because of their nationality or where they live.
Further guidance is to be issued shortly (later this week) which should help to further explain the registration process and should help you to decide what to do.
Desmond Farndell CTA
Senior Policy Adviser
VAT Supply Team, Indirect Tax Directorate, HMRC 100 Parliament Street, London SW1A 2BQ