(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.
Regrettably, for my own comics The Pride and Stiffs, it is looking like I will be forced to join them in that option.”
“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!”
• Sign the petition calling for a unilateral suspension of the introduction of the new EU VAT laws for micro businesses and sole traders
• Check out the VAT Action Team web site to see what you can do in the UK to campaign against the changes
• Digital Microbusiness Action Group
• 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
• Read our original report on the #VATMOSS / #VATMESS debacle here, which includes further links to articles about how comic creators will be affected by the VAT changes
Categories: British Comics, Creating Comics, downthetubes Comics News
Here is the response to a letter raising my concerns about the changes from the North West UKIP MEPs Nigel Brown and Louise Bours. As you can see, it’s pretty much a form letter telling us what I already know…
Thank you for your message. As I am sure you can imagine, we are receiving an increasing number of emails on this subject.
We are aware of the problem with VAT MOSS and UKIP has delivered Written Parliamentary Questions to the EU Commission on this matter, we hope to have a reply before the rules come into force (but even ‘priority’ questions take three weeks to grind through the Commission’s bureaucracy).
We suspect in practice that where internet sales of the type caught by the new rules form a part of a small business the only solution, to avoid the need for their whole business to collect VAT, is to incorporate a separate company to conduct the VAT MOSS related internet business – far from ideal. We are told that HMRC are desperately trying to come up with a fudge, but I am not at all sure it will be legally watertight.
The EU Commission is the only body that can; initiate new EU laws, begin repeal of or start any amendment to EU laws, or negotiate trade agreements. The EU Commissioners are not elected, but appointed. MPs and MEPs have no binding way to force the Commission to do anything it doesn’t want to do. So, once an EU law passes there is nothing a voter or a MP or even a MEP can do to change it. EU Commissioners are required by Treaty to ignore national interest and to act only in the interests of the EU as a whole. In a normal democracy, if you don’t like a law or a set of politicians, every 5 years or so everyone gets to vote for someone else who can change the law. This doesn’t happen in the EU because the elected MEPs don’t have those powers.
The administrative cost on small businesses of this change to VAT is significant because, as a direct result of these rules, they will have to:
1. Invoice for VAT (or possibly not depending on the different rules in different jurisdictions).
2. Collect at least two pieces of non-conflicting information to prove the location of the consumer
(apparently the Commission wrongly assumed that everyone uses ‘gateways’ to collect this).
3. Store that information on an EU server for 10 years.
4. Implement Data Protection rules and register with the Data Protection Commissioner in each jurisdiction (the regulations for which are lengthy and complex).
5. Create a separate legal entity and register that for VAT MOSS if they don’t want to lose their UK VAT threshold.
6. Complete returns quarterly under penalty of all 28 jurisdictions potentially.
7. Be ready for audits from potentially 28 jurisdictions (we believe the EU Commission are trying to encourage some countries to join one audit, but it’s not binding on them – unlike everything on us).
In this context it is worth remembering that VAT is an EU tax – some of the revenue from VAT is regarded by the EU as part of its ‘own resources’ and goes directly to the EU rather than to the Member State – this explains why they are so keen on this harmonisation and so indifferent to the plight of small businesses. In much of the rest of Europe VAT is charged on everything, and at a higher rate than in the UK. The loss of UK control is so great that even the Chancellor, George Osborne, must ask permission from the EU Commission if he wishes to reduce the VAT rate on a particular item.
I’m told that HMRC raised some of the problems with the EU at the time that the EU Commission was drafting the legislation, but no other country was interested and so we are left with this mess.
The EU is trying to reduce tax competition between Member States so that it can maximise its income from ‘own resources’. Transparent tax competition is what keeps countries ‘honest’ in their public finances – see more on this (and the EU proposals for a common consolidated corporate tax) written by Steven Woolfe MEP here… http://www.ukipmeps.org/news_973_Finance-ministers-call-for-corporate-tax-EU-power-grab.html
VAT is such a complex tax that it is expensive to comply with, UKIP would like to simplify the entire tax system – making compliance cheaper and avoidance less tempting.
You may have had an opportunity to read more about the problem in the Mail on Sunday at this link…
The only way in which we can stop this type of bureaucratic meddling in our affairs, or have any real opportunity of reversing it if it occurs, is to leave the EU and prevent them from using HMRC to collect foreign taxes, after all the UK is more than a star on someone else’s flag
Here is a reply to my letter about the concerns raised by #VATMESS from ‘Freelance Tsar’ David Morris. Sadly, it’s a form letter for the most part repeating the stance of HMRC, which simply confirms my suspicion that he never actually reads the letters he’s sent in any detail:
Dear Mr Freeman,
Thank you for contacting me about the VAT of supply changes.
I appreciate you taking the time to contact me on this matter, which I know is causing concerns to many small business owners. I hope I can set out the reasons for this change and what the UK is doing to reduce the burden on small businesses of this measure.
As you are aware, previously, intra-EU supplies of digital services to non-business customers across the EU were subject to VAT in the Member State where the supplier belongs. However, from 1 January 2015 these services will be taxed in the Member State in which the consumer is located.
This change is important to the UK. It removes a distortion of competition which unfairly favours businesses that locate to a Member State with a lower rate of VAT than the UK. It therefore creates a level playing field for all UK businesses and helps protect UK revenue. This means UK consumers of these services will pay UK VAT no matter where in the EU the supplier belongs and also affects UK businesses which supply non-business customers in other Member States.
I can assure you the Government is keen to do everything it possibly can to support the smallest businesses. Although, it continues to make the case in Europe for some form of cross-border threshold, so that the smallest businesses would be outside the system altogether, other Member States and the Commission do not support such an approach.
Therefore, other measures have been put forward to reduce the impacts. These include the Mini One Stop Shop (MOSS) that allows businesses to account for all the VAT due throughout the EU via a single registration in one Member State; and making digital platform operators (e.g. ebay) accountable for the VAT on digital services, such as apps, sold through their platforms.
In addition, we have introduced non-legislative measures to help businesses have been introduced. First, EU Member States recently agreed ‘best practice’ Guidelines to encourage Member States to coordinate activity in order to minimise business (and tax administration) burdens; and second, an EU web portal to provide information about the relevant rules in all Member States, including rules on VAT rates and invoicing, available to all businesses across the EU, in a single place, has been set up. This is available at:
HM Revenue and Customs (HMRC) has also been asked to do as much as they can to support UK businesses. As a result, they have provided additional guidance on some key issues raised by smaller UK businesses that I hope will go some way to allaying fears, as it is clear that some small businesses are very worried about how these rules affect them.
The additional guidance includes advice on how small businesses can register for VAT in the UK to be eligible for MOSS and still benefit from the UK’s VAT registration threshold for sales to UK consumers. This means that businesses under the current VAT registration threshold of £81,000 may register in respect of their cross border sales only.
As a result, a business will not have to account for VAT on its supplies to UK customers. It will be required to make quarterly UK VAT returns, but this will normally only involve a “nil return”. One advantage of registering for VAT in this way is that the business will be able to recover any UK VAT it incurs in making cross border supplies – in which case it will simply have to show those figures in the return in order to receive a repayment from HMRC. This approach, together with other guidance specific to smaller businesses, has been publicised in the HMRC Revenue and Customs Brief which is available on line at http://www.gov.uk.
I can assure you that officials will also continue to provide support and to engage with UK businesses and hope this helps explain these changes and the efforts the UK has made to reduce the burden on small business where it can.
Thank you again for contacting me.
David Morris MP
Morecambe and Lunesdale
House of Commons
Tel: 0207 219 7234
Fax: 0207 219 6610
Here’s a reply to concerns raised about the VAT changes from North West Conservative MEP Sajjad Karim , received 7th January 2014
Thank you for your email to Mr Karim regarding the change in VAT rules affecting small companies selling digital products within the EU. Mr Karim is aware of these changes and has received a large volume of correspondence on this important matter from his North West constituents.
In his work as an MEP, Mr Karim has always been very keen to champion the region’s small and medium sized enterprises and reduce the administrative burden placed upon them by EU-related regulations. He has naturally been concerned that HMRC are to change the way VAT is charged upon digital companies operating in the UK, potentially increasing not only their costs, but also the amount of administration necessary for compliance. To this end, Mr Karim and his Conservative colleagues have sought assurances from Government Ministers and HMRC on this matter.
Conservatives in the European Parliament and Government Ministers in the Council of Europe have fought hard for a cross-border threshold for VAT, so that SMEs would be excluded from the new system in the same way that businesses with a turnover under £81,000 are excluded from VAT in the UK. However, these proposals have not been met with support from either the European Commission or other EU Member States – many of which have a zero-threshold for VAT and are concerned that UK businesses would under-cut them. Unfortunately, to approve such EU-wide changes would need the unanimous agreement of all 28 EU Member States, so these discussions have ended in stalemate.
In light of the fact it has not been possible to get the EU-wide threshold implemented, the UK Government has put in place other measures to mitigate the impact of the changes. These measures include:
If a micro or small business trades through a third party platform or marketplace it will be the responsibility of the marketplace operator to account for the VAT.
Any small and micro-businesses selling digital services that are affected, can also opt to use the Mini One Stop Shop (MOSS) online service for supplies to consumers in other Member States. The Mini One Stop Shop (MOSS) allows businesses to account for all the VAT due throughout the EU via a single registration and simple process (HMRC’s UK MOSS has been open since October 2014)
HMRC have confirmed that for those making ‘digital’ supplies to EU consumers this threshold still applies on UK activity and the Mini One stop shop is available for any cross border provision.
HMRC continues to provide guidance
Mr Karim understands that the mitigations may not completely alleviate the additional problems caused by these changes, but hopes they go some way to helping. Further information is available from the following websites:
About the changes: http://www.gov.uk/vat-on-digital-services-in-the-eu
More detailed guidance: http://www.gov.uk/government/publications/vat-supplying-digital-services-and-the-vat-mini-one-stop-shop/vat-supplying-digital-services-and-the-vat-mini-one-stop-shop
Furthermore, in December 2014, Mr Karim’s Conservative colleague, and the Leader of the European Conservative Group, Syed Kamall MEP, met with HMRC Minister, David Gauke MP to discuss the proposed changes. Following the meeting, Mr Gauke wrote to Mr Kamall outlining the key points of the changes and what the Government is doing to support small businesses.
I hope this email and the information provided by HMRC can help your business to diminish the impact of this change in the rules. Please be assured that Mr Karim and his Conservative colleagues will be monitoring the impact closely and will continue to push for common VAT thresholds across the EU and for further help for our SMEs.
(on behalf of Sajjad Karim MEP)
UK Assistant to Sajjad Karim MEP
Conservative Member of the European Parliament for North West England
Here is a reply to my letter raising concerns over the VAT changes from Conservative MEP for the North West of England Jacqueline Foster MEP, received 6th January 2015. It’s wonderful she suggested contacting David Morris – a shame his response was so dismal.
Thank you to everyone who has been in touch with me regarding the VAT changes affecting our small and micro businesses.
As you may be aware, these changes were agreed by the previous Government, in 2007, and were intended to stop online businesses from establishing themselves in tax havens and thus avoiding VAT altogether.
However, from the emails I have received from constituents, it is clear that, as is so often the case with directives and regulations from the EU, there are unintended consequences from this change. Not least the impact it will have on companies and traders with very small turnover – in some cases, our businesses of tomorrow!
As a Conservative MEP, I believe there should be an exemption for micro businesses, similar to the UK VAT threshold.
However, this was opposed by other EU Member States – many of which have a zero-threshold for VAT and were concerned that UK businesses would under-cut them.
Conservative MEPs have been meeting with Treasury Ministers in this country, most recently with David Gauke MP, Treasury Minister responsible for VAT, to see what can be done to assist our businesses.
The UK Government has now made it clear that even if a small business is having to pay overseas VAT, they can still benefit from the UK exemption up to the UK VAT registration threshold (£81,000).
In addition, if a micro or small business trades via a third party platform or marketplace it will be the responsibility of the marketplace operator to administer VAT.
Furthermore, if the seller has had to pay VAT on a purchase (for example on buying a computer) they will be able to off-set a proportion of that VAT cost against VAT charges in other EU countries.
Conservative MEPs have also met with Commissioner Oettinger (Digital Economy & Society) and Commissioner Ansip (Digital Single Market) and urged them to introduce this threshold for micro businesses. They have advised that they have been looking at this urgently and I very much hope we will see some movement quickly.
I have also suggested to several constituents that they contact David Morris MP, in his capacity as the Government’s first-ever Ambassador for the Self Employed, appointed in November. Details here: (details via this link http://www.davidmorris.org.uk/news/david-morris-mp-appointed-government%E2%80%99s-new-self-employed-ambassador
With so much of Europe affected by high unemployment and weak growth, I would hope it would not be too long before those responsible for this measure will connect this poor economic performance with measures such as the one you have raised. It is time for the Commission to wake up and smell the coffee!
Please be assured that, as a Conservative MEP in the North West, I will continue to press for the changes I have outlined.
My sincere thanks to you for raising this with me, and for all you are doing to get our economy moving!
With best wishes,
Jacqueline Foster MEP
Conservative MEP for the North West of England
Deputy Leader of the Conservative MEPs
Conservative Spokesman on Transport & Tourism in the European Parliament