David Cameron to tackle EU VAT red tape

Monday 23 March 2015

Prime minister David Cameron is set to tackle the administrative burden that contractors, sole traders and limited companies face when dealing with value added tax (VAT) in the European Union (EU).

Officials from Downing Street said, at the European Council summit this week, that he will be having direct talks with Commission president Jean-Claude Juncker about the unintended consequences of new VAT regulations.

The new rules came into force at the start of 2015 and mean that businesses that sell digital products will have to pay VAT at the rate that operates in the buyer's location, rather than that as the seller. What's more, those that sell digital services will not have the same threshold worth £81,000 that other sellers get. On top of that, sellers will be required to keep records for ten years.

Mr Cameron's plans to tackle the issues faced by the self employed due to new EU VAT rules have been welcomed by the Association of Independent Professionals and the Self Employed (IPSE).

Policy and external affairs adviser at IPSE, Jordan Marshall, said: "Action from the Prime Minister is very welcome. While it’s no guarantee this problem will be speedily resolved, it shows that government has listened to the concerns that IPSE and other groups have robustly set out.

“These EU changes to VAT policy were well-intentioned but have gone desperately wrong in their implementation. They were intended to tackle the problem of web giants such as Google and Amazon channelling all EU sales through low VAT countries such as Luxembourg, but microbusinesses have become caught in this net.”

Mr Marshall said that sole trader will not be able to comply with the administrative burden that is imposed through the regulations, adding "it is nonsensical to expect individuals to to keep records for ten years".

He explained that there needs to be cross-border EU VAT thresholds and that small businesses should also be exempt from the high costs that are associated with compliance.

Mr Marshall believes that entrepreneurs are crucial for delivering economic prosperity but said that regulations get in the way of allowing these workers to make their business grow. He expressed his disappointment that the policy seems to be working against people looking to grow their business in digital services, given that it is a sector that sees high growth.

The change in the VAT Place of Supply rules in the UK is known widely as VAT MOSS and has had an adverse effect on small businesses so far. IPSE says that a number of traders have stopped selling their services due to the high administrative burden that is faced by small businesses working in the digital services sector.

Clara Josa of the EU VAT Action Group added that: "The new EU VAT legislation brings corporate levels of regulation and administration not just to the boardrooms, but also to the kitchen tables of sole traders."

By Victoria McDonnell

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