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: