A controversial new VAT arrangement that was du
e to impact UK SMEs from 1st January has had its worst excesses reigned in following a timely intervention by the government.
The new arrangements had meant that whenever a business sold digital services and products such as ebooks, e-courses, recorded training videos, music and audio downloads:
- the seller would be liable for VAT in the original purchasing location.
- the seller would have to waive their UK “de minimis” threshold
- the seller would need to apply VAT to everything they sell, not just the digital services.
This left businesses with just two options:
- To register for VAT in every EU member state where they have customers
- To set up a ‘Mini One Stop Shop’ (MOSS) by registering for VAT in the UK.
This meant that those business for whom there was no requirement to collect UK VAT (if a business’s turnover was less than £81,000) would suddenly be exposed to VAT administration and payment.
HMRC ruled that although the EU ruling remained applicable the burden would not now extend to the requirement to extend the administration and charging of VAT on their domestic sales.
HMRC commented:
“Businesses below the current VAT registration threshold that can separate their sales to UK customers from sales to EU customers can voluntarily register the cross border element of their business, and then use that registration number to register for MOSS. This means that their domestic sales will remain VAT free.
“New EU rules were brought in to remove unfair competition between online traders registered in EU states with very low VAT rates and traders based in member states like the UK with higher standard VAT rates.”
Whilst UK SMEs haven’t escaped the full effects of the EU’s latest folly, at least the government has seen fit to reduce the wider and equally unnecessary burden and with statistics showing that a shocking 59% of new business fail within 5 years, any good news cannot come soon enough.