Monthly Archives: January 2015

Should HMRC and HM Treasury be the ones explaining themselves in court?

Let’s have a look at the Tax Information and Impact Notes published in December 2013, signed off by David Gauke, Financial Secretary to the Treasury, specifically relating to this particular area of indirect tax.

Now, there are all sorts of holes to be ripped in this particular document and its reasoning, by far better qualified folk than me. Meantime, two things catch my eye in the section dealing with VAT: place of supply and the introduction of the Mini-One Stop Shop starting p.133 of that document.

Equalities impacts. The Government has no information about the protected equality groups of any individuals who may be affected but no specific impacts have been identified for any protected equalities group.

Really? Absence of evidence is not evidence of absence and the point’s been made time and again that the smallest online businesses are a way out of benefits for the housebound, carers, the retired and the disabled. Not to mention the unemployed, who Job Centres actively encourage to use their skills to go self-employed. Using digital skills is one realistic way to do that because you can set up a business investing time instead of money.

It also doesn’t look like HMRC have learned anything from the legal judgement that’s already gone against them, as reported here, stating that mandatory online VAT filing is breach of taxpayers’ human rights. There were no exemptions for those who found online filing difficult, for any reason.

I’m guessing their first argument here would be that anyone running an online business must self-evidently be computer literate. But there’s a world of difference between running a small online business using a free plug-in to enable downloads alongside a PayPal ‘Buy Now’ button and having to manage a e-commerce system fully integrated with PayPal’s API, with all the costs that entails – and that’s before we get on to the record keeping and reporting issues.

Did HMRC ever actually look into any of this beyond making the most superficial assumptions?

Then there’s the final note on ‘Other Impacts’.

Small and micro business assessment: small businesses that provide e-services direct to customers in other member states may incur additional costs, although these are expected to be partially mitigated by MOSS.
Businesses currently unregistered in the UK who choose to register for MOSS in the UK will also have to obtain a UK VAT registration and their UK supplies will therefore also become liable to VAT.
Other impacts have been considered and none have been identified.

Really? None? I really would dearly love to see the people who set all this up explaining in court just how they went about considering other impacts and how exactly none have been identified!

And those costs little businesses may incur which are expected to be partially mitigated? How about that for vague and conditional language? Was there any actual research done here? With actual y’know, numbers? And where and who exactly did this information come from?

Because we know full well they didn’t even go as far as consulting, let alone notifying the UK’s 370,000+ registered sole traders. That’s registered with HMRC so it’s not as if they had far to go to find out who they were and there are already systems in place for notifying them of tax changes!

Well, I am not a lawyer, nor anything close, and sadly I don’t have the funds to pay anyone who is to launch any legal challenge along these lines.

So we have to carry on challenging this appallingly flawed legislation in letters to our MPs and MEPs.

And as far as that HMRC and HM Treasury impact assessment goes? You can use this particular website to register your own disapproval of David Gauke offering this appallingly complacent and ill-informed document as an answer David Morris’s written question of 19th January, asking for a comparative assessment of the level of administrative burden the EU VAT place of supply rules places on (a) micro businesses and sole traders and (b) large multinational companies.

Click through and look at the right hand side of the page. Does this answer the above question? If you don’t think so, click on ‘NO!’

How long before the first court case over VATMOSS and the new digital EU VAT?

Is it going to be one of the tiny businesses and solo e-commerce traders in the UK who are desperately trying to find a compliant solution, only to discover the best currently on offer are semi-compliant? What’s going to happen on the 1st of July when the 6 month grace period on collecting two pieces of customer location data offered by HMRC expires – and people find themselves tied into a system that can only collect one?

Will it be someone who’s read the inaccurate newspaper and media reports of that grace period and believes the whole legislation has been suspended for six months? Because it hasn’t.

Will it be someone who’s read about someone else’s cunning ‘work around’ and believed it, without checking with HMRC themselves?

Will it be someone who’s made their own judgement on their business’s level of ‘manual intervention’, only to discover somewhere down the line that HMRC don’t agree…

Will it be someone who’s decided to opt out of all the confusion by barring all sales to other EU countries, only to discover this falls foul of discrimination legislation? At best that’s a very grey area.

Will it be someone who’s aware of discrimination legislation and has decided that they are still going to bar EU sales, because they’re going to rely on the ‘unreasonable burden’ get-out clause in there. Only to discover that HMRC don’t agree.

Because personally I can see the authorities coming down hard and fast on any such argument. If they allow that sort of precedent to stand, this whole system will quickly become unworkable.

Will it be someone who’s assumed that HMRC’s definitions of what is and isn’t an electronic service covered by these regulations apply across the EU? Because they don’t.

Not that there’s any centralised way of finding out what Bulgaria, for example, have decided about the digital supply of knitting patterns by downloadable pdf.

And since HMRC have already contradicted themselves and changed their minds several times, it’s entirely possible there are people out there relying on outdated information which could cause them problems later on.

Though let’s give HMRC their due. They are at least communicating with those affected and there are resources online to find. Other tax authorities across the EU are playing catch up at best, and at worst, people in France, Germany, Sweden, Finland and the Netherlands are getting contradictory and confusing answers, depending on what whoever happens to answer the phone happens to think.

And those are only the countries I’ve seen information from. Not from their tax authorities, you understand, but from personal stories on Twitter and Facebook.

So how exactly am I supposed to find out anything definitive for myself, especially relating to countries where I don’t even speak the language. What’s the Romanian verdict on where the balance lies between personal intervention and an automatic download for a training course delivered part by webinar and part by ebook?

Will we someone prosecuted for applying an out of date VAT rate or one that doesn’t apply under the particular regional exception where their customer happens to live?

The official EU pdf detailing VAT rates comes with a very prominent disclaimer:

“The purpose of this document is to disseminate information about the VAT rates in force in the Member States of the European Union. The information has been supplied by the respective Member States, but part of it has not been verified by some of them yet. The Commission cannot be held responsible for its accuracy or completeness, neither does its publication imply any endorsement by the Commission of those Member States’ legal provisions.”

Will we see someone prosecuted in France for believing the widespread assertion that Autoentrepreneur status which bars them from levying VAT takes them out of the scope of this legislation?

Apparently the French VATMOSS portal has now changed so that Autoentrepreneurs can register which they couldn’t do up till now. I wonder how many people who tried and were told the system didn’t apply to them will have heard about this?

Will we see someone in Spain prosecuted for believing business media reports there that the same turnover thresholds apply for digital sales as for physical goods. And that’s not just a Spanish misunderstanding. It crops up time and again in queries from across the EU.

Will the first person in court be an American seller, or one from Australia, New Zealand, Canada – or anywhere else in the world – who’s decided that they’re simply not going to comply. Where does the EU have the right to dictate taxation to them? Only to discover that their own authorities have actually signed agreements to enable this sort of thing…

And onlookers wonder why small e-traders are deciding the safest thing to do is just shut up shop.

Well, there is more you can do. Check out the information on writing letters and emails here.

Do make sure to visit EU VAT Action for information, resources, calls to action and other ways you can make your voice heard!

For those of you on Facebook, there’s EU VAT Action Campaign Group – and associated foreign language groups are now being established.

Making ourselves heard in Brussels!

Okay! The pressure we’ve been applying through EU VAT Action – along with every letter and email you have all been sending – is getting results.

We convinced two London MEPs to present our data and case studies to Donato Raponi, Head of VAT at the EU Commission.

As a result he’s agreed to meet representatives from our group, and others, within the next ten days.
More details as arrangements are finalised.

Meantime, help us keep up the pressure with those letters and emails to your MEPs, MPs, trade bodies, professional associations…

Let’s make our voices heard!

Full update from EU VAT Action

What the companies who *did* know digital EU VAT was coming thought, according to KPMG

This far we’ve been focusing on the dire consequences of the new EU digital VAT legislation for the small scale traders who were never consulted or considered by the EU Commission, HM Treasury, HMRC – and just about everyone else – primarily because they had no idea this particular commercial sector even existed.

Larger companies, especially those who were lucky enough to belong to the voluntary associations and other business bodies that HMRC chose to brief, and also those who can afford to pay the sky-high fees of multinational accountancy firms were informed and indeed consulted.

You can read KPMG’s 2014 report on their readiness survey here.

Let me flag up a few key points for you.

Pricing strategy
Over 75% of businesses surveyed are considering increasing their prices from 2015.

Compliance and costs
31% – nearly one in three businesses with turnover of £50m-£100m do not believe that they will be ready to comply with the changes by 1 January 2015.

Commercial strategy
61% Of businesses with turnover of £50m-£100m are considering reducing the number of EU territories into which they sell affected products.

Education and awareness
62% Of small-sized businesses were not aware that the changes to VAT are happening.

And these are businesses who knew it was coming and could reasonably be expected to have the resources to cope.

How exactly are the smallest scale traders supposed to manage?

I have another question. Who in any kind of relevant government department would have seen this information? If not, why not?

Or do firms like KPMG just post this sort of stuff online, in the manner of someone chucking a message in a bottle out to sea? In hopes that someone somewhere might pick it up…?

Please feel free to use this in letters you are writing.

Independently publishing ebooks in the UK – what’s changed since 1st January 2015?

In broad brush strokes, here’s how things have changed, thanks to the new EU VAT laws on digital cross-border sales, for any UK author or small press independently publishing ebooks. By which I mean not just handing everything over to Amazon KDP. Bearing in mind almost all these people are doing this work in the evenings and at weekends, alongside the job that pays their bills. For whom reaching the VAT threshold with their business has never been a possibility – and they’re perfectly happy with that.

Up to 31st December 2014

Write your book and prepare it in epub and mobi formats, spending your own time and skills where possible, and money where you must, to buy in help, to get it copy-edited and proof-read, formatted, and source cover art and copy.

Quite possibly use a crowdfunding platform such as Kickstarter or Indiegogo to raise the money you need to do all this.

Decide if you want to use ISBNs, to benefit from your book being fully catalogued by libraries and databases, more easily found in searches and being quickly, provably your work in cases of copyright infringement. If so, buy some ISBNs. Not cheap but you can really bring down the price by buying in bulk. Then you are at least set for future projects.

Upload your book to Amazon.com to use the world’s biggest book market place. That automatically puts your book on sale in all their stores.

Bearing in mind that involves quite a bit of administration, including proving that you have the legal right to actually publish the book if you’re a small press rather than the author personally.

Upload your book to Nook and Kobo and Google, to give people who don’t want to use Amazon for whatever reason a choice. And to give yourself options if Amazon decides to do something odd like de-list whole swathes of books for no readily apparent reason. You know it happens after all.

Sort out the administration required to have a US Tax ID or acceptable equivalent if you don’t want all these sites to withhold 30% of your income from US sales just to keep the IRS happy.

Bearing in mind that using all these sites costs you a hefty percentage of your book’s price, under their non-negotiable terms and conditions, subject to change at any time as they see fit.

Remind yourself that if any of those sites’ those terms and conditions become outrageous, you can always point readers towards buying copies direct from your own website.

Have a look at iTunes and the general small-business-user unfriendliness of their terms and conditions etc. Quite possibly decide not to bother since iPeople can always buy epub copies direct from your own website.

Have a look at other independent, specialist ebook sellers and come to mutually acceptable terms with the ones most suited to your particular book’s genre and target audience.

Use PayPal’s ‘Buy Now’ button as your payment gateway (available in 203 markets and 26 currencies) and a free, simple e-commerce plug-in so you can offer direct sales from your own website.

So that should cover pretty much everyone who wants to buy your work, right?

While you won’t sell nearly as many books direct as you do through the big platforms, you will benefit from getting all of the money and getting it straight away rather than waiting for the 4-6 weeks it takes for the big platforms to pay revenue through to you.

So it’s been quite a bit of work, but that’s been manageable to maximise your potential income.

After 1st January 2015

Contemplate the additional costs now required in time, software, payment processing fees etc to continue with direct sales from your own website, now that you must gather 2 pieces of non-conflicting location-confirming data (which in practise means you must collect 3) to enable you to calculate, apply and collect the correct VAT applicable in a customer’s home country.

Realise the practical and technical difficulties of doing any of this in anything approaching an accurate or verifiable way. Have the people who put this system together ever actually used the Internet?

Realise there are over 75 different VAT rates in 28 EU member states (plus internal regional variations) only officially available as a pdf from the EU Commission updated every 6 months. But you know you saw something in the news quite recently about some country in Europe changing their VAT rates on something or other – but you cannot for the life of you remember the details or where you saw that.

Find the most recent EU Commission VAT rates pdf. Notice the prominent disclaimer “The information has been supplied by the respective Member States, but part of it has not been verified by some of them yet. The Commission cannot be held responsible for its accuracy or completeness, neither does its publication imply any endorsement by the Commission of those Member States’ legal provisions.” So that’s reassuring.

That’s before you consider how to go about meeting the 10 year data storage requirements and the need to complete quarterly VATMOSS returns to account for your EU cross-border sales where you are now acting as an unpaid tax collector for HMRC.

Do you really want all that extra administration and worry, when every country seems to be interpreting these regulations differently? Plus those definitions seem to change every time you try to check?

Never mind these hassles. Most likely realise that the additional costs simply make it uneconomic to continue with those direct sales which have never been the majority of your business, even though it’s definitely been useful additional income.

Assess how much longer it will now take for you to recoup the upfront costs of the books you have already published and/or save up enough to cover the costs for producing future projects.

Give up on using crowdfunding to finance new projects as you discover no major crowdfunding platforms support the new VAT legislation.

Adjust your business plans accordingly. Decide if your business is still viable.

Consider the workarounds suggested, such as processing orders via email and sending digital files to each individual customer. Realise how quickly that will become unworkable above a minimal level of sales. And may be illegal anyway as some countries are now deciding that manually emailed files do still fall within the scope of this legislation.

Assuming your customer’s inbox even accepts files of the requisite size and your own ISP doesn’t decide you’ve suddenly become a spammer when your pattern of email use changes so markedly. Wonder yet again if whoever dreamed this up actually uses the Internet.

Consider the helpful suggestion of posting out your books on CDs or USB sticks. Right, that’ll work because there’s a CD drive or standard USB port on every tablet or phone – NOT. Stop laughing some while later.

Okay, what about SD cards? That might work. But all these things have to be paid for up front, in bulk if you want them cheaply, plus postage and packing and then there’s the time taken making trips to the post office…

Oh, come on! What customer is going to bother ordering copies of books to be sent on digital media through the post, with all the risks of stuff getting lost or damaged, when they can just go to Amazon, Google Play or Kobo and get an instant download?

Get serious. Wish whoever dreamed this up would get serious.

Find out how many of those specialist online booksellers you’ve been working with so far have no idea what this is all about, thanks to the abysmal way this has all been communicated. Discover how many of those based outside the EU have decided their simplest option to escape this mess is to abandon sales into the EU entirely.

Most likely decide that your only realistic option is now to only sell through 3rd parties. So you’ll be giving up that hefty chunk of fees on all your income instead of on just most of it.

Take a moment to contemplate the irony of a new system designed to stop the big digital corporations gaming the tax system having the effect of consolidating their dominance of e-commerce.

Maybe indulge in a little conspiracy theorising. Did Amazon etc realise the benefits they would reap, to offset losing the Luxembourg-based taxation arrangements which have enabled their predatory pricing? Because they certainly do use the Internet and understand how it works. Just look how much easier life already becomes with every step an author takes to hand control of their epublishing over to Amazon…

Meantime, back in the real world, give up on Nook completely when you realise it’s now impossible to set the single European ex-VAT price they ask for which also enables you to meet separate German and French retail price maintenance regulations.

Realise, quite possibly for the first time, that Google Play only makes books available for sale in 57 countries. So what about everywhere else? Okay, granted, the chances of you selling an ebook in a lot of these countries is pretty remote. But at least there used to be a chance. Now that’s gone.

Take another look at iTunes and wonder if there’s any way to find out how many of your direct sales used to be to iPeople. Is it worth tackling their system now?

Realise that iTunes only sells books in 51 countries, to people with credit cards registered in a subtly different list of 54 countries. You can only offer books to the remaining 104 countries they list for free. Realise that list includes some pretty big countries like Russia as well as smaller ones like Croatia. Those particularly catch your eye because you know your books have keen readers in both.

Look at the list of 57 countries where people can apparently access Kindle content, according to the Amazon.co.uk website. It says to visit ‘the following page’ to find out about what people in countries not listed can do. Er, what following page? There’s no link or anything…?

Discover that when your books were tax free you could enter one price and rely on Amazon to adjust prices to match current exchange rates. But now Amazon wants you to enter tax inclusive prices in some countries (with different rates) and tax exclusive prices in others. Oh lovely, yet more work.

Read some stories on the Kindle User forums about having problems buying Kindle content depending on where you happen to be living or travelling, if that doesn’t tie up in the right way with the country where you bank or where your Amazon account is registered.

Realise that the chances of you selling an ebook in what looked like unlikely countries aren’t quite as remote as you thought.

Should you put a note on your website offering to post these people having trouble getting your books a CD, SD card or USB stick? Um, not really because if HMRC change their mind yet again and decide this isn’t a workaround, you’ve just convicted yourself of tax fraud.

Be realistic. There’s no point offering to post CDs anyway because these people will be getting your book so much more quickly and easily in an illegal download from a pirate site, won’t they?

Well, at least Kobo reckon to sell books in 190 countries. Keep your fingers crossed that their market share increases.

Read some EU pronouncements on the importance of the digital single market and the value of the online knowledge economy to employment growth and wealth creation.

Wonder if these people actually talk to each other, ever, at all, let alone talk to somebody who has the first clue about how the Internet really works in this day and age.

Talis Kimberley tackles Vince Cable and the Federation of Small Businesses.

So, the new legislation is here and proving to be the unworkable shambles we all knew it would be. You can find a full report on that over at the EU VAT Action website.

We’re keeping up the pressure, relaying all the evidence we gather to MPs, MEPs and the relevant EU Commission departments.

Talis Kimberley with her other hat on, as Talis Kimberley Fairbourn, Green Party parliamentary candidate for South Swindon* has done sterling work on everyone’s behalf!

“Yesterday I had the opportunity to ask a Senior Government Minister a question on small businesses, at an FSB event (I’m a member but haven’t engaged with them before). Turned out it was Vince Cable.

Now, not being shy, I sat there in the front middle seat right in front of him (Green Party badge on my shoulder as is my habit) and stuck up my hand when they asked for questions… got picked first, out of only about seven or eight questions for which there was time, so I’m glad I didn’t wait. Here’s what I asked:

‘Minister, you’ve spoken of working to create a good tax environment for businesses, and of tackling red tape.

What will you do to reinstate the much-needed threshold lost by online micro-businesses under the new, and chronically under-communicated VAT rules on where the tax is levied – rules which place an intolerable administrative burden on tiny sole traders and digital creative businesses, rules which other EU countries are implementing unevenly and which countries beyond the EU are largely ignoring as unenforceable, further disadvantaging UK digital businesses, and making a nonsense of your stated intent to support online commerce and small businesses generally?’

His reply was largely along the lines that Britain is doing really well with online businesses, and that he’s not a tax expert. He did say he was going to Brussels ‘to see about this’, and I have contacted my local Green MEP Molly Scott Cato in case it’s appropriate for them to liaise, as she’s been involved in raising this in Brussels herself. The Minister concluded “VAT is a current problem whether you’re digital or not” to which I muttered that it hadn’t been a problem for many of us until this change… but without a right of reply as such, I sat and looked unimpressed at him, scribbling notes.

However, at the end of the session, he approached me at once and said ‘I’m aware that I didn’t answer your question, may I have your particulars?’ so I gave him my card… let’s see what happens. I’ll keep you posted.’

More news on that as we get it!

Please continue to do what you can – and don’t take the first reply you get to a letter as any kind of final answer. I got the standard brush-off/HMRC-cut-and-paste reply from my MEP Catherine Bearder – and was so annoyed I fired back a polite but no holds barred take down of their worthless reassurances. Since then she’s got back to me with a much more informed response plus a list of the actions she’s taking to get this issue investigated properly in Whitehall and in Brussels.

For any of you in London, MEP Syed Kamall is looking for case studies – actual examples of the problems people are having.

* I mention this in the interests of full disclosure. This isn’t a party political issue after all – Syed Kamall and Vicky Ford are both Conservative MEPs and Catherine Bearder’s a Lib Dem. Other folk report getting similarly better informed responses from Labour MPs and MEPs – when they’ve answered an initial brush off with hard facts and figures.

January 2015 – where we are and where we’re going

So here we are, with everyone fully back to work after the Christmas and New Year break. And how are things with the new VAT regime?

Well, here’s Cheryl Morgan of Wizard’s Tower Press explaining just how awkward and time-consuming the so-called simple solution of using 3rd party vendors can actually be in reality.

As well as costing us that hefty and non-negotiable slice of income for the privilege. Oh, and let’s not forget that revenues from those third party sites are paid through anything from a month to six weeks after the actual customer has made their purchase. Whereas direct sales mean direct income!

A lot of people remain unaware of all this – which is hardly their fault, given how badly communicating all this has been handled by HMRC. Something that’s making folk sit up and take notice is finding US sites they’ve been happily using are now barring sales to the EU completely.

If you come across someone thinking this is just a knee-jerk response along the lines of ‘no taxation without representation’, here’s a blogpost from Carolyn Jewel explaining how it is IMPOSSIBLE for her to continue selling ebooks anywhere in the EU through Nook.

So while some providers such as Bandcamp have made heroic, eleventh hour efforts to enable their users to comply, and HMRC have shifted their ground over issues such as customer location evidence, it’s still very much apparent that this legislation is fundamentally unfit for purpose.

Accordingly the EU VAT Action team have been discussing our new focus for this new year. You can read the full update here.

In summary – The 2015 campaign aims are:
Short-term: to obtain a fair and reasonable exemption threshold, to apply worldwide

Short-medium-term: to work with the key EU decision-makers to review this legislation from the ground up, reworking it to be practical, fair and reasonable, even for the smallest companies

Long-term: to work at a global level to ensure that the other countries who are bringing in similar place of supply VAT legislation learn from the experiences we are having in the EU and avoid repeating the same mistakes.

Sounds simple, eh? Well, in some ways it is. This is so demonstrably legislation that’s wholly unfit for purpose.

What will make all the difference to the EU VAT Action Team being heard is being able to show just how many people we are speaking for. The EU VAT Action website lists a whole lot of ways you can add your voice.

If we are to see meaningful change at an EU level, we need to have sustained campaigns in as many EU member states as possible. Please do all you can to spread the word to family, friends and colleagues across Europe.