Small businesses forced to close over new VAT rules » SMEInsider

Small businesses forced to close over new VAT rules

Changes to European VAT rules for companies selling digital products have forced over 200 small businesses to stop trading.

The new regulations, which came into effect on January 1st, were originally intended to prevent internet giants from dodging tax. They require any firm selling digital products or services, such as ebooks or computer software, to charge VAT at the rate that applies in each customer’s country.

But many small firms say they have been forced to abandon trading because of the complexity of the new rules. Campaigners are calling on the government to suspend implementation of the legislation, claiming that despite efforts by Revenue & Customs to set up a simplified VAT registration system, the ploy is still too difficult for small businesses exporting to a number of different EU markets.

Many of these small firms were too small to have previously registered for British VAT. Campaigners argue that far too many micro-businesses will have ceased trading or stopped selling digital products before the European Commission can process the requisite legislative change, adding that the Government should act in order to protect small businesses and sole traders from the administrative and financial burden of these new rules.

“Despite the concessions our campaign has gained from HMRC, such as being able to keep the UK VAT threshold for domestic sales and a light touch from the taxman during the launch phase, we have already had contact from over 200 people who have confirmed they have had to stop trading because they couldn’t comply with the legislation and didn’t want to break the law,” said Clare Josa, founder of campaigning website EUVATaction.org, in a This is Money report.

“We also have scores of non-EU businesses who have now closed their doors to EU trade to avoid the new rules,” she added.

“This really hits women working from home who have businesses designed to help support their families, and anyone who is disabled or a carer,” said Annabel Kaye, founder of employment law firm Irenicon.

“These tiny businesses are way below the EU radar for consultation – but not, it appears, for compliance,” she added.