As we have received many messages from citizens, artists and creative workers and SMEs regarding the VAT changes that came into effect on 1 January 2015, our office has looked into this issue in more detail, to answer specific concerns and to explore what options there are for small and micro businesses when it comes to complying with this legislation.
The legislation changes were adopted in 2006, and upfront it should be made clear that there does not appear to be any possibility of getting the law postponed or amended at this stage. The reintroduction of a VAT threshold that many are calling for could only happen following a proposal from the Commission, and the unanimous agreement of all 28 EU Member States.
It is worth pointing out that when the previous Labour government was first negotiating this legislation, we argued strongly for a cross-border threshold of the kind that you are asking for, and made a proposal to that effect so that the smallest businesses could remain outside the VAT system, but this was not supported by other Member States.
Here is further information on more specific detailed that concerns SMEs:
- Information collection: HMRC believes that it should be possible for businesses to obtain and store two pieces of non-contradictory information about where a customer lives – for instance, by asking for either a billing address or a telephone number at the point of sale, and then receiving a customer country code from the payment service provider when the customer pays for their item.
- Data storage: HMRC has confirmed that businesses will have to store that customer data for 10 years as things currently stand. However, that requirement could be reviewed and amended if Member States agree that it is disproportionate. The UK certainly believes that it is disproportionate.
- Servers: The information does not have to be stored on an EU-specific server, and the new provisions will not mean that most businesses need to upgrade their servers. It is not certain that businesses will have to register with the relevant national data controller, but we have not had absolute clarification of that point.
- Definition of ‘digital services’: HMRC has recently published a briefing which includes additional detailed guidance, with examples, of the types of supply that are within scope and outside the scope of the term ‘digital service’: https://www.gov.uk/government/publications/revenue-and-customs-brief-46-2014-vat-rule-change-and-the-vat-mini-one-stop-shop-additional-guidance. If you come across any discrepancies as to how that is being applied across Europe, then please let us know and we can inform the Commission.
- Ongoing support from HMRC: After a lot of pressure from small and micro businesses, and from Labour MEPs, HMRC has sought to identify helping prepare for the rule change – for example, by simplifying the MOSS registration process and clarifying that businesses will not have to register for MOSS until several weeks after they make their first cross-border sale. HMRC is also trying to find other ways that they can help support small and micro-businesses. In addition to the brief above, HMRC has also created a special 2015 email address for specific enquiries: firstname.lastname@example.org
While Labour MEPs appreciate that it will be disappointing that it is not possible to change or delay the law as a whole at this stage, they hope that the pressure that they have placed on HMRC to clarify and simplify the process for small and micro-businesses has helped to answer some of the concerns expressed.
Labour MEPs Anneliese Dodds and Neena Gill, who are members of the EP committee on Economic and Monetary affairs, have been monitoring this issue carefully and provided our office with the relevant information. For more detailed questions we encourage you to contact them: email@example.com, firstname.lastname@example.org.
The EU must recognize and support the contribution of small and medium enterprises and organisations - cultural and creative SMEs in particular - not only in terms of economic potential, but also for their unexplored potential to generate social capital.
Cultural SMEs are crucial for “innovation”, as it is well-known that larger organisations are risk-averse. In addition, cultural SMEs also play a key role in social entrepreneurship and social economy: 7.08% of social enterprises operate in the Culture and the Arts sector. Beyond the figures and the share of GDP, cultural SMEs play an important role in improving individual and collective wellbeing and bring significant social value. This is the message Labour MEPs like Julie will voice in Brussels.
As a practicing artist, having run an arts organisation for 30 years before being elected as an MEP, Julie also encourages cultural and creative businesses to participate in alliances and networks (for e.g. the Artists Union, the Musicians Union, etc.) in order to share good practice and advocate better for the interest of the sector. Such a big change of legislation, especially when badly anticipated and prepared by authorities, is overwhelming for small businesses. Belonging to a network of organisations facing the same challenges might be helpful, as well as a powerful advocacy tool.