EU VAT rule changes

Source: HM Revenue & Customs | | 30/04/2015

HMRC massively underestimated the impact of the new EU rules on micro digital businesses, according to a report published by Enterprise Nation. On 1 January 2015, the place of supply of certain B2C digital services changed. The place of supply is now determined by the location of the customer who receives the service rather than the location of the supplier. The new rules were put in place to combat large multi-nationals locating their businesses in low tax jurisdictions.

The biggest impact of the changes has been on micro digital businesses who are struggling to adapt to the complex changes in the EU VAT rules. Businesses supplying e-services are now required to register for VAT in every EU jurisdiction where they make a sale even if they are a micro business operating under the current VAT registration limit. Businesses can elect to use a special scheme, known as the Mini One Stop Shop (MOSS) that allows businesses to register in only one EU member state and submit a single VAT return and payment each quarter for all their cross border supplies of digital services. However, many businesses are struggling to cope and some have refused to supply customers outside the UK.

HMRC’s own figures published in 2013 estimated that the number of non-VAT registered firms likely to be affected at 5,000. However, the report revealed that HMRC underestimated the number of potential small businesses trading e-services with EU countries by more than 10,000%.

Emma Jones, founder of Enterprise Nation, said:

'Micro enterprises are a hugely important contributor to the economic growth and innovation and their functioning should be stimulated, not hindered. As they stand, these rules make it attractive for small firms to cease trade with Europe.'

 

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