EU Commissioner VP Andrus Ansip making a formal statement in the Parliamentary debate about EU VAT agreed that the consequences of the Digital VAT legislation are severe for small businesses and that the additional administration it brings is something they cannot manage.
This admission is a huge achievement and a million miles from the ‘there, there, dear, just calm down’ responses so many of us received in December 2014 through to February this year.
In last night’s speech, Ansip said the EU VAT rules are still mainly a UK problem. Although there is evidence that it is EU-wide the UK has been the most vocal about the need to reverse the rule change.
In March 2015, Ansip and VP Frans Timmermans promised to urgently remove the burden of this legislation from Small Businesses, which was brilliant news. In various speeches since then, VP Ansip has also confirmed that he understands the huge urgency of this problem and wants to protect micro businesses and SMEs from the unintended damaging consequences.
However, in last night’s speech, VP Ansip said that the proposed threshold will only be €100,000 (about £71,000), instead of protecting micro businesses (< €2m) or SMEs (even higher) and he made no mention of the desperately-needed reworking of the rules, to make it possible for a business above the threshold to comply. Ansip also said that they is no timeframe to when the start of discussion on amending or creating the required legislation will begin and that the legislation may not start to be discussed in 2016. The UK and other EU member states do however have the option to introduce an interim Extra Statutory Concession (ESC). This is a piece of legislation that would allow the UK to comply with their EU agreement to implement the legislation, which they have done, and to keep it in place for the large businesses that are already able to comply. But it could immediately suspend the legislation for SMEs, allowing them to revert to the domestic VAT rules, in order to continue trading. Clare Josa, from EU VAT Action said: "It’s not about tax dodging or asking for enormous VAT thresholds. It’s about accepting that the unintended consequences of this legislation are so severe for the smallest businesses that it is forcing them to cease trading, to block foreign customers or to drop their digital sales – and that they must be protected while the EU takes the time it needs to renegotiate a sensibly-high threshold and to simplify these laws above that threshold, so that that businesses are not penalised, in order to collect tax on behalf of other countries." "Micro businesses are already exempt from some other administrative burdens in the EU, such as formal audit, because it is felt this extra administration would damage the businesses and not be cost-effective for the governments. The unworkable administrative load of the new Digital VAT rules is far higher than that of audit and should therefore be treated the same way. Josh concluded: "It’s time to undo the incorrect assumption that led to all this" Image: Holding Letter by Shutterstock
