New EU VAT rules

Campaigners have issued a plea to the government to temporarily halt the implementation of the new European VAT rules, which came into force on 1st January 2015. As a result of the new legislation, over 200 small businesses plan to cease trading or have already done so.The legislation was originally intended to prevent large companies from dodging tax, although this appears to have backfired for smaller companies.

Businesses which sell digital services or products must now pay VAT at the rate applicable for the country of the consumer. However, this is too complex for most of the small companies, although HMRC have provided a simpler alternative, according to the founder of, Clare Josa. The website is campaigning for the implementation of the rules to be suspended.

According to Josa, the EU and UK failed to take into consideration the small companies below the VAT threshold in the UK, during the impact assessment conducted over the last six years. HMRCNew VAT rules
has shown significant support for the campaign, by demonstrating lenience during the initial rollout of the legislation and being permitted to use the UK threshold for VAT for domestic sales.

Josa confirmed that more than 200 business owners have contacted the campaign website to inform them that they will have to cease trading, as they are unable to remain compliant with the legislation and don’t want to fall foul of HMRC.

John Walding, from the Forum of Private Business, said:

“Outside of tax expert circles, there is a relatively low awareness of the impact of these changes, which means that businesses may unknowingly find themselves in breach of the new rules.”

What are the new rules?

VAT will be paid at the rate of the consumer’s country, rather than the rate charged in the supplier’s country.

What are the options for a small company?

If you supply digital services to EU consumers, you have two options:

1) Register with HMRC to use the VAT Mini One Stop Shop (MOSS), an online service
2) Register for VAT in each of the countries you make digital supplies to

What is MOSS?

MOSS is a system introduced by HMRC to simplify the process. Under the new system, you will account for the VAT due on sales from business to consumers in other European countries, by completing and submitting a quarterly return. You will make any payment due for VAT in those countries to HMRC. A copy of the return and any payment will be sent to the tax authority in each country by HMRC.