Progress made on download VAT

Tuesday 10 November 2015

Since the beginning of 2015, businesses in the EU that provide digital services (such as downloadable PDFs or other document types) have been subject to new rules on value added tax (VAT), which are known as VAT MOSS.

The new system means that VAT had to paid at the rate of the country in which the purchase is made, rather than in which the seller is based. This was meant to crack down on large companies routing their business through tax havens, at least when it comes to digital sales such as e-books.

However, it has also had a significant impact on freelance designers and IT specialists who wish to sell their work abroad, as they may feel unable to deal with the burden of calculating and applying the taxes themselves.

In the wake of an EU conference in Dublin back in September, a consultation has been launched which lays out some potential solutions. The main option put forward is a turnover threshold, which would maintain the restrictions on larger companies while avoiding putting an undue burden on small businesses and the self-employed.

A final number for the threshold could be anything from 1,000 euros to 100,00 euros, although there is also the possibility of a so-called “soft landing”. This would set one level below which businesses would be completely exempted, and another below which there would be less stringent requirements.

Jordan Marshall, the policy and external affairs advisor at the Independent Association of the Self-Employed (IPSE), said: “At a recent briefing with Treasury officials, they indicated that given the UK would have the European Council Presidency during 2017 there may be the opportunity to push forward any legislation. It may also be possible to split up the legislation to speed the process up, as at present the consultation groups together a number of disparate issues.

“IPSE’s response to the consultation, which closes in December, will urge the Commission to implement a more rapid response than the current timescales suggest. It will do little good for the self-employed struggling at the moment if there is no solution in place until 2020.

“We will continue to meet regularly with government officials in the coming months to call for a robust response from the UK, urging reasonable turnover thresholds to be put in place before it’s too late.”

A formal proposal to update the rules is set to be put forward at some point in 2016, although it is not clear how long it will take to work out a system that meets with the approval of all of the relevant EU member states.

The initial consultation will remain open until December for those affected to submit their views.

By Victoria McDonnell

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