Controversial new EU VAT regulations came into effect on 1 January 2015.

How do they affect your business?

The new EU VAT rules have annoyed a lot of people, mainly due to their complexity and wording. For example, the Regulation states that the changes will only apply to those providing digital services.

This is confusing, because actually the rules not only cover digital services like broadcasting and telecoms services (think Skype or Vimeo), but also products, such as ebooks, games or other downloads.

The broad effect of the legislation is another big reason why small business owners are upset.

Really, the rules are a good thing, as they’re meant to stop the current VAT evasion practices of big multinationals.

For example, Amazon currently funnels its EU sales through a subsidiary in Luxembourg, benefitting from the country’s extremely low VAT rate.

The new rules will force Amazon to register for VAT in every country it supplies to, meaning member states will get the taxes they rightly deserve.

The problem is that the rules have been implemented with no threshold, meaning that even if you’re a really small business with a limited turnover, you’ll still be affected.

This seems highly disproportionate, and it’s safe to say that neither the EU nor HMRC has properly considered the impact the new rules will have on micro businesses.

Thankfully, a small victory for the small business community has been made. So much of a fuss was kicked up about the huge impact the new rules would have on UK microbusinesses that HMRC agreed to make some changes.

Basically, if you’re a UK business and can separate your UK from your EU sales, you’ll only have to pay VAT on any UK sales over the current threshold of £81,000 gross a year.

Unfortunately however, this has made it even more difficult to figure out whether or not you’re affected.

Add to this the several other criteria that could affect your position and it’s no wonder the whole thing has been dubbed a right #VATMESS

HMRC tried to clear things up by, in the Revenue’s inimitable fashion, publishing an ugly and intimidating flow chart.

Thankfully, Crunch Accounting made an attractive click-through quiz version for you to try out instead, which you can find at the bottom of their post on the new EU VAT rules.

If you’re still confused about what these changes mean, and whether or not you’ll be affected, here's a short video explaining the basics:

Nicholas Chowdrey

Published 8 January, 2015 by Nicholas Chowdrey

Nick Chowdrey is a freelance content marketer and journalist, and a contributor to Econsultancy. You can follow Nick on Twitter and LinkedIn.

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Pete Austin

Pete Austin, Founder and GDPR Geek at Fresh Relevance

That "ugly and intimidating flow chart" (PDF) with 7 questions, in case any readers want to use it. I think it's reasonably clear.
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/390300/VAT_MOSS_Flow_chart.pdf

over 3 years ago

Nicholas Chowdrey

Nicholas Chowdrey, Digital Engagement Specialist at Personal

Buuuuut my click-through quiz is definitely prettier - http://www.crunch.co.uk/small-business-advice/2014/12/09/affected-new-eu-vat-rules/

over 3 years ago

Pete Austin

Pete Austin, Founder and GDPR Geek at Fresh Relevance

In the Crunch Accounting version, I'm pretty sure that "Do you sell to customers
in other EU countries?" should be "Do you sell to non-business customers in other
EU Member States?" which is the version of this question in the HMRC version.

The difference is significant, for example, to businesses which are mainly B2B but have a few non-business customers, all in the UK. Comments are not enabled on their page, so I'm mentioning it here.

over 3 years ago

Nicholas Chowdrey

Nicholas Chowdrey, Digital Engagement Specialist at Personal

Thanks for the heads up, Pete. That's now been changed.

over 3 years ago

Jonathan Phillips

Jonathan Phillips, Managing Director at babyREFLUX (Group FMI)

Without doubt the best way to explain the issue:

http://hannahkate.net/hannahs-bananas-a-vatmoss-analogy/

Also there are areas that aren't mentioned in the article (only the flowchart) such as selling through 'markets' (eBay, Amazon, Etsy etc) and also delivery e.g. automatic downloads vs manual email. Manual email delivery for example means you are not effected.

over 3 years ago

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victor clar, Strategy Analyst at GSI Commerce

Thanks Nick for this great explanation. What about digital gift cards? Both if redeemed for digital goods or not.

over 3 years ago

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Tony Powell, Director at Advanced Data Analytics

This is all very interesting, but like so much more that has been published on this topic simply talks about the regulations and what they mean. My business is purely B2B so I am not affected by these rules, but if I were a small business owner selling B2C, then for me the critical question is not all that no doubt interesting to tax adviser guff, but what practical things can I or should I do in or on my website so that I can easily collect the information that I need to be able to identify the correct destination state, and calculate the correct VAT and ensure that this is properly recorded in my accounting records so that I can get on with doing what I do best – ie running my business not wrestling with arcane legislation that has been badly designed – if only because of the lack of s de-minimis threshold. I have seen other articles that suggest that the business owners are simply going to stop selling to the EU – damaging their business. Indeed last year when talking to people that I bumped into who could be affected none of them were aware of this change until I pointed it out and they certainly had not taken any steps to be able to ensure compliance. Indeed I only found out about it by chance – in August and was immediately appalled by the collateral damage that such a badly thought through regulation could have on small businesses trying to do the right thing while earning a decent crust.
So the important question that I have not yet found any answers to is: If I am caught by this – then what do I need to do to my site and my shopping cart to ensure that all is being done properly. So, for example can you tell us if the providers of the shopping cart plug-ins have all updated their carts to take account of these rules? And if not all of them, then which ones have? Alternatively have any providers come forward with a VAT MOSS plug-in that can work alongside the shopping cart? Or if none of these apply – then what do I really need to do apart from drown in a pile of paper on customer addresses, bank accounts etc etc so that as I say I could get on with my business not working unpaid for the various European tax authorities?
Oh and by the way Americans, Australians, Canadians, Indians, Chinese or Russians – well anyone out there – as I understand it you are also affected as the rules apply to any sale into the EU not where the vendor happens to live – so the customer end is EU but the vendor net that has been created is global.
I would really value any comments from anyone who has found a way to handle this VATMOSS mess quickly and efficiently.
Thank you.

over 3 years ago

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Sarah Flaherty, Head of Marketing at Taxamo

Nice post as always Nick.

At Taxamo we provide a technical solution to the 2015 EU VAT rules. @Tony to your point, we have both API and Plugin integration available (www.taxamo.com) and cover all requirements from the moment a customer lands on your site, to creating your EU VAT MOSS return and storing data for 10 years.

In December we saw traffic to our website double to well over 10,000, and a high % were non-EU folks. Remember, rules on VAT for non-Union members have been in place since 2003 so this perhaps isn't as new to many of them. There was a lot of backlash before Christmas but our sense is that people know this isn't going away and are looking for reasonable solutions that allow them to keep trading.

over 3 years ago

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Tony Powell, Director at Advanced Data Analytics

Sarah,

Thanks for the tip and the link - OK I have not been looking actively - VAT etc is not my business - but this is the first time that I have found someone with something practical rather than Tax theoretical to offer on the subject. I am relieved as, when I found out about VATMOSS, it was evident that it had a huge potential for unintended consequences. Indeed in his video Nick suggests that the number of business affected could be 34,000. I saw a post before Christmas that suggested that this was a gross understatement and that the figure could be as high as 460,000 - I think that was just UK, so the number Europe-wide and Globally is well who knows. That post also was unaware of any potential solutions - so again my thinks for your post - at least now if asked again I can point people in one direction (and not burst into song). It would though be great to hear from others who are also providing solutions to this issue - including the providers of existing shopping carts and similarly affected plug ins.

Thanks again,

Tony

over 3 years ago

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