More than 200 small firms have already stopped trading in the first two weeks of the new year thanks to new VAT rules imposed by the European Union.
The companies say they have been forced to abandon trading because the rules, which were designed to stop tax avoidance by internet giants, are too complex for their small businesses, the Financial Mail reports.
The rules require anyone selling digital products and services, including e books, software, sheet music and even knitting patterns to charge VAT at the rate that applies in their customer’s country.
An online petition against the new rules has already received over 15,000 signatures asking the European Commissioner responsible, Pierre Moscovici, to unilaterally suspend the new law for micro businesses and sole traders.
In the open letter to the Commissioner for Economic and Financial Affairs, they warn:
The new EU VAT regulations coming into force on 1 Jan 2015 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 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.
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.
Not concerned because you sell physical products rather than digital services? 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 founder of the campaigning website EUVATaction.org, Clara Jose, said:
“We need the Government to suspend implementation of the legislation. The unintended consequences are devastating for hundreds of thousands of micro-businesses and if we wait for the European Commission to process legislative change, then far too many small firms will have closed or ceased selling digital products, which will damage their trade.
“Businesses below the UK VAT threshold weren’t considered by the EU – or by the UK – during any of the impact assessments over the past six years. This, combined with the business-wrecking consequences and near-impossible administrative burden, should be enough justification for the Government to show leadership and protect British firms and sole traders.”
Ms Jose confirmed that the website had already had contact from over 200 people saying they have stopped trading because they couldn’t afford to comply with the legislation but didn’t want to break the law, despite the concessions gained from HMRC such as being able to keep the UK VAT threshold for domestic sales.
“We also have scores of non-EU businesses who have now closed their doors to EU trade to avoid the new rules,” she said.
She added that the campaign was working with a number of MEPs to try change the rules but even that “will most likely be too slow for many businesses.”
In news likely to upset MEPs and eurocrats who are always trying to pass legislation to promote women, it is the ‘kitchen table’ sole traders who are hardest hit.
Employment lawyer Annabel Kaye confirmed that “this really hits women working from home who have businesses designed to help support their families, and anyone who is disabled or is a carer.”
“These tiny businesses are way below the EU radar for consultation – but not, it appears, for compliance. If you combine this with the changes to working tax credits, you see a devastatingly difficult set of changes for the people who are least able to cope. And it seems very unfortunate to target those who want to work and are working.”
UKIP small business spokesman Margot Parker MEP pointed out the hypocrisy of the legislation, saying:
“The regulations, meant to stop giants such as Amazon taking advantage of the tax-haven the new Commission president Jean-Claude Juncker set up in his home country of Luxembourg when he was prime minister, may now sweep up and destroy thousands of small businesses. These businesses, which often operate out of the spare room of a family home, sell everything from knitting patterns to digital novels to self-help courses.”