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#VATMOSS #VATMESS, HMRC and Julian Huppert MP. Update. Microbusiness update

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Who would be an MP?

My MP, is currently in parliament trying to pass the bill to put 0.7% of GDP to work supporting less developed countries.

I think this is a thing that is important, not just from the perspective of  it seeming like a sensible thing to do – this country is an historical beneficiary of the labour and resources of other countries that we have ruthlessly exploited for our own benefit which is one of the reasons we are such a rich country. Selfishly, Foreign Aid is also something that makes the world a safer place which is good for us too. The Bill will not go  to law because there area a series of amendments and clarifications tabled by people who disagree – largely Conservatives as far as I can see though I am as contemptuous of the other political parties so this isn’t about that, it is a reflection of the absurd state of our political system that people end up wasting time talking in these debates that really make a mockery of the democratic process.

Guy Fawkes had the right idea as far as I am concerned but like Russell Brand he had no better option. I don’t either.

There are a few good people though. This is my letter to my constituency MP, Julian Huppert following a telephone conversation we had last night. It is posted with his permission as so many people have been asking what is happening.

In short. he agrees that the VATMOSS debacle is a mess and needs some serious tweeking. He agrees this “needs fixing!”

Where I think we are now.

He will do what he can but because of the way these things work, it is almost inconceivable that any law will change by January 1st. He did not say this, but I honestly think the only thing that anyone can do to deal with this at the moment is to ignore the law and wait for it to be clarified in due course. It is simply not possible to comply with the regulations around VATMOSS for small businesses (and even worse, sole traders) as they are framed at the moment. Anyone that is spending money on trying to is wasting their money as they may well have to spend again when the law is made clear.

Next steps here.

Julian has tabled questions in parliament and treasury though he not won right to ask on ballots. He is bringing the issue to attention of both the Chancellor and the Head of HMRC and come back.

Dear Julian,

Thank you very much for your call today and your willingness to address the issues we discussed with respect to the laws that come into effect on January 1st with respect to the VATMOSS regulations. Please also pass on your thanks to Penny in your office who has been particularly helpful in making this happen.

I don’t know if there is anything that can be done in the time frames we discussed but really do appreciate your willingness to try. As one of the few elected representatives of the people we have in the UK who has an understanding of the issues involved, I am greatly encouraged by your willingness to engage in the discussion and see if we can do something that will not put small businesses in an uncompetitive position with respect to the rest of the world. I have no doubt that this was not the intent of the regulations and hope that sense will prevail.

Thank you for trying to table questions etc. If there is anything that I can do to help please let me know. This does not affect me directly but puts a huge number of people who are hard working, enterprising people, learning the craft of entrepreneurship, happily pursuing a profitable hobby, working hard to support themselves and their families in an impossible position. This is not the intent of the regulations, introduced as I understand it to call large global corporations like Amazon who have flagrantly ignored the laws of nation states and trade blocks such as the EU, in order to undermine small businesses.

Sadly, they will have precisely the opposite effect for many hard working enterprising people.

Not only that, the UK HMRC implementation of these regulations has been so confused and badly implemented that today, less than a month before this is law, there is still no clear guidelines that can be followed to ensure that people can even comply. There is a 92 pages guideline document with no clear practical advice. Over the past week, I have seen HMRC ‘advice’ that has suggested that small businesses engage in tax evasion in one case and refuse to sell to other countries in the EU in itself against  other EU laws. Accountants have not been informed of the the changes required. As HMRC are not prepared or capable of issuing clear guidelines, an industry of sharks and consultants is offering paid assistance to microbusinesses who want to do the right thing to keep within the law but cannot realistically do so as the law is unworkable. Everyone in the UK loses. Particularly small companies, microbusineses and soletraders.

The notion that selling digital goods online requires a microbusiness to abide by the same regulations that apply to a large multinational organisation raises some serious issues for them. Microbusinesses need and deserve clarity.

  • That the same VAT rules that apply to regular businesses are being applied here – the UK VAT registration threshold is a dream for most of these organisations – is stifling the spirit of enterprise in the country.

  • Requiring them to be VAT registered if they are selling online, and imposing impossible hurdles on them in order to prove that the purchasers of digital goods reside in a particular country is absurd.

  • People with low revenue who have tried to register for VAT in order to comply have been told by HMRC that they cannot register unless they can show proof of turnover that approaches the VAT threshold. Of course they can’t! They are only registering because HMRC told them to!

  • The requirement for them to keep these records, for ten years, leaves them and their customers open to a number of  potential issues – data and privacy, secure storage etc that they simply cannot maintain.

  • VAT registration with a £0 threshold in the UK is a huge issue for small businesses selling to consumers:

    • It creates a significant administrative overhead on them

    • It means that they have to charge VAT to purchasers of their goods in the UK, adding 20% to the cost of goods they sell in the UK.

    • US companies are already stating they will ignore this as they cannot understand the regulations and will never be taken to task.

  • If the rules have to be applied, (and I understand that there is some degree of ambiguity as to whether this is an EU thing where all traders have to revert to the lowest common denominator (i.e. Greece has a VAT reg threshold of £0), we are all in the EU, so if we trade in the EU we have to apply the lowest limit, then for goodness sake, give them some very clear guidelines and rules. This is not Amazon or Microsoft or Vodafone, these are single traders with other things on their minds – other jobs, children etc.

  • I understand that HMRC has also said that all companies doing ecommerce are using platforms that will be compliant or some such but this is just not true. Any meaningful ecommerce business, will be using a sensible platform to conduct their business but will have staff etc who deal with these things. These are not ‘meaningful’ businesses in that respect, but they are significant in themselves

  • Many of the people affected are doing something that makes a major difference to their family – they can afford new clothes for their children in one instance I know personally.

  • There is so much fear and misinformation out there that some people are already spending money and time on doing things that aren’t even going to comply with consultants and companies that are interested in making money from the fear and misinformation that is being spread but cannot in fact guarantee that this means those companies comply with regulations that have not been made clear in the first place.

  • I understand the UK has taken an ‘unique’ approach to this implementation, in contrast to all other EU countries who have interpreted the laws differently. (i.e. Microbusinesses are not forced into this situation and do not have to register).

There was a meeting with HMRC and some representatives of small businesses and enterprises today.

I understand this was in some respects positive but also understand that there was no undertaking to do anything within a fixed timescale. HMRC have said that they will raise these issues with Brussels. I read this as bureaucrat speak for, ‘We will get back to you in due course and hope you go away’ That is just too late and not enough as from Jan 1, a huge number of people will be breaking the law, many without any knowledge that they are doing so.

Some options to consider but hope your knowledge of the way that parliament works may come up with something more practical:

  • Maintaining the current VAT threshold. (This still puts larger UK businesses at a major disadvantage to a company that can chose its domicile but at least removes the administrative burden from those that can afford it least. Amazon who can pretend their business is located in the country with the most favourable tax regime), so back to square one. I don’t think this is something that will be resolved pre-election…!
  • A de minimis limit on revenue is essential. If this is not the standard VAT threshold, it needs to be high enough that people are not discouraged from trying to do something interesting or enterprising.
  • HMRC must issue workable, unambiguous, clear guidelines on what they require. They have not done so. Whatever happens with the thresholds etc, this is ridiculous. How can people comply with a law that no one knows about when the organisation in charge of putting it in place isn’t clear what the guidelines are?
  • A clear statement from the government that in the light of emerging data, there is a recognition that this needs to be reconsidered. While the law is technically ‘in place’, it will not be pursued until people know what the law is.

I fear that the only advice that I can honestly offer people coming to me for help at the moment is to sit tight, do nothing, wait for clarity. Ignore the law. As the law is so unclear, I don’t see that people have much option.

I greatly appreciate your interest in this and hope that you can raise this with The Chancellor and the Head of HMRC as a matter of urgency and that this will lead to at the very minimum some clarity on what the law is and how it can work. At present, it is fatally flawed and is going to stifle digital enterprise. Sole traders and microbusinesses are voters too and I want them to support you next year.

Thank you.

With best wishes.

Mark Littlewood

IoT Forum 2015 11-12 March, 2015, Cambridge, England.
Business of Software Europe 23-24 June, 2015, Cambridge, England.
Business of Software Conference USA 21-23 September, 2015, Boston, MA.
is produced by the Business Leaders Network.
HMRC and Small Business Associations
HMRC met with a few small business owners and associations at a meeting yesterday that I was invited to but was unable to attend. I understand the meeting was constructive and a number of people left feeling hopeful that HMRC had listened and would act. There was a promise that HMRC would raise the matter with Brussels but would not commit to any timeframe for action.
I am pleased they listened. I am equally sure from all the episodes of Yes Minister! that I have watched that this is bureaucrat speak for so we had a meeting with you and now you can go away and leave this with us in the sure knowledge that we will do absolutely nothing and hopefulyl you will forget about it.

Conclusion

Given the January 1st deadline for implementation of these regulations and the utter lack of clarity on what has to be done and who is affected, I don’t see anyone has a better option at this point than to put a note on their website if they are selling things online to say you want to comply with the laws but can’t do so until you know what the laws are.
I do not advocate breaking the law. I do not advocate tax evasion. The law as it stands is unworkable so they really have to make some steps to make it work.
A de minimis threshold is the minimum that needs to happen.
At the moment, if you are a small business with digital products, this is what you are probably feeling.
Shawshank Redemption Malcolm Tucker
Will update when I hear any news. I am glad there are people in parliament that care.

3 responses to “#VATMOSS #VATMESS, HMRC and Julian Huppert MP. Update. Microbusiness update”

  1. Excellent post Mark, many thanks. Go fight the good fight, Julian!

  2. Hi Mark,

    Thanks so much for sharing this. It’s nice to know that we have at least one MP who is on our side.

    One thing that many seem to overlook though is, aside from the ridiculous, naive and ignorant blanket assumption from the EU and HMRC that the majority of people sell via an online platform and thus won’t be affected, a lot of these online platforms are micro businesses themselves with only a handful of employees at most. So this all affects them to the same severe degree that it affects any other micro business/sole trader. Not only that, but many of these platforms either:

    1) aren’t actually aware of the forthcoming VAT changes,

    2) have heard about them but don’t know enough about them,

    3) think that, because they already have an automatic VAT system in place, they’re already covered when, in reality, the new regulations would indicate otherwise,

    4) they know all about them but have no intention of doing anything about it because they think they don’t have to.

    I can foresee a very, very, very small number of people trying to comply with this. The majority of the rest will either go out of business, cease trading with EU countries altogether, or simply ignore the batty and totally unworkable regulations.

    I would be interested to see how the EU attempts to go after non-compliance. So, let’s say the EU try to prosecute a US citizen and the US citizen basically says, “Get lost!” Then what? Are countries – let’s say the US, for example – really going to sit back and allow the EU to attempt to take legal action against their citizens on the strength of an ill-thought-out, unreasonable, unworkable and unfair set of regulations? The potential for the international tension that could arise as a result of all this is something that I don’t feel they have even considered. And what if certain countries stand up against it and, as a country say, “This is unacceptable and we refuse to be dictated to like this. We won’t comply and will not allow our citizens to be bullied.”

    As you mentioned above, in the UK we wouldn’t even be able to register for VAT if our earnings are below a certain amount, so how on earth can we be expected to comply with these barmy regulations? Who then would be liable? So the EU come along and say, “You haven’t been following the new VAT regulations.” I say, in a nutshell, “I can’t – HMRC won’t let me.” So will the EU hold HMRC accountable?

    Totally loony and COMPLETELY unworkable! Heck, it’s not even workable in theory, let alone in the real world!

    »Glenn«

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