EU digital VAT changes fail to meet expectations
It has been reported by the European Commission that fewer than 7,000 businesses, including 500 non EU companies, have registered under the new MOSS scheme around the European Union. Which is significantly lower than the estimated hundreds of thousands expected. In the UK alone there are an estimated 200,000 companies who were affected by the changes.
The low registration numbers could be an indicator that companies are not aware that they now need to collect foreign VAT for the first time, figures suggest that up to 62% of small businesses are unaware of how the changes affect them. Potentially these smaller businesses may have decided to stop selling to countries in the European Union due to the additional administrative burden that they may not be able to afford as it is the first time they are drawn into the EU VAT regime.
In the case of UK companies they may be put off from applying as even though, the “mini one-stop shop” would seem the easiest option for small businesses, if they are trading under the VAT threshold they won’t be registered for VAT in the UK and will need to do that. Technically, registering for VAT means that they potentially lose their UK £81,000 exemption – but HMRC have said that such businesses can register for their EU sales only and as long as their UK sales don’t go over this threshold they can remain outside the scope of UK VAT, so if businesses are unaware of this they may choose not to register.
It was originally estimated by HMRC that an additional £300m in revenue for the UK would be generated by the changes, but if companies are pulling out of selling to the EU then this figure may be significantly lower.
For more information on EU digital VAT changes, please see our previous posts.
EU 2015 VAT Changes for American Companies
EU 2015 VAT Changes – Determining customer location
VAT Changes in the digital download world