The VAT MOSS petition started by Issy Zinaburg has gathered force. In the last few weeks, hundreds of small business owners have come together and thanks to the efforts of a group of those people, we have had meetings at the highest level and our voices have started to be heard.

There is still a way to go, but we were feeling positive.

Then yesterday Vince Cable (Secretary of State for Business, Innovation and Skills) to whom the petition was addressed, and whose representatives had been at these meetings, had heard and understood our position, responded publicly to the petition.

You can read that response here.

Here is the email I sent yesterday – I am making it public because I am seethingly furious that with 10 working days left before Christmas, we still have no clear guidance from HMRC. Those of us that do know about it are floundering, wondering what the hell we should do – do we close? Do we risk contravening the law by refusing to sell to the EU? Do we take a step back in time, progress and technology and revert to selling only physical products, putting our ebooks on CDs and our courses on USB sticks? (Even this last won’t be safe, as they want to roll out the changes to all products and services “soon” – potentially by 2016).

The email is long, but I believe entirely necessary. Before we started to speak up, they didn’t know we existed. So we must continue to let them know they are suffocating us – and suffocating enterprise and innovation in this country. Many of my less stubborn friends won’t bother to start a business with all this red tape in place – one of the beautiful things about the internet and automated technology was the way it enabled people to try things out.

I am very much hoping that we see a more sympathetic and better researched response from Vince and his team before the week is out.


Dear Mr Cable,

Regarding your response to our petition (https://www.change.org/p/vince-cable-mp-uphold-the-vat-exemption-threshold-for-businesses-supplying-digital-products/responses/25596), I would like to clarify that we are asking for the following:

1. A de minimis level (ideally the £81,000 UK VAT threshold) below which businesses would be exempt from the new EU VAT rules on place of supply for digital services, removing the administrative burden and avoiding tens of thousands of them having to close.

2. Micro businesses cannot reasonably obtain and check the 3 pieces of ‘place of supply’ evidence during the purchase process. We therefore ask for an exemption allowing micro businesses to be able to use just the customer’s self-declared address as proof, otherwise we will either have to cease trading or break the law.

I am writing to you, after your response to the petition, to raise the following points:

1) The changes may not be new or sudden, but due to the fact that the government and HMRC didn’t do their research properly, almost none of the businesses that will be hit hardest have been informed.

Personally, I have a limited company and two sole trader businesses, and though I am legally registered and fill in a tax return every year, neither I nor the accountant I use once a year to check my tax return had any idea about this until we found out via a chance Facebook post. I have, however, had several reminders in the last two years from HMRC about my tax return – with no mention of this ruling.

2) I categorically disagree with your statement “regardless, the majority of UK micro-businesses will not be affected”. Enterprise Nation’s expert suggests 260,000 businesses are directly affected by these changes.

Your government’s definition of micro-business (up to £2m annual turnover and up to 9 employees) is woefully ignorant of the true state of online enterprise – I personally know of a few hundred, and know of the existence of thousands more, of businesses which operate successfully but barely make the income tax limit, let alone £2m or the VAT threshold of £81,000.

Again, to use myself as an example, I am a true kitchen-table business, or solopreneur – my sole trader activities turn over less than £5k a year and make me around £1,000 annually in a good year, on top of my day job. My limited company is run from my living room, the stock kept in a cupboard there, and currently I don’t draw any income at all from it while I build it. Its turnover is  currently less than £3,500 annually.

I don’t have an accountant because I can’t afford or justify one yet, so I simply have one look at the tax return I do myself each year. I don’t have a team – as with so many of the businesses you claim won’t be affected, we do everything – designing the products, marketing, selling, bookkeeping, updating the website, photographing and all admin.

Adding VAT returns to this and the data collection currently required is simply unworkable.

3) The vast majority of these businesses sell their digital goods and services from their own website because the 30%-70% cut of profits taken by Amazon or other third-party platforms makes it entirely pointless to create and sell.

Likewise, the delivery of these is automated because that automation is what makes them worth selling – a £2.99 crochet pattern or set of printable organiser pages becomes a loss leader if, in order to avoid VAT, you have to manually customise each order and send it out. It’s also bad customer service as in the digital age we live and work in, you can’t accurately restrict your sales – that is the whole point of the internet.

Which brings me to

4) Your point about trading only in the UK and never sell to the EU is moot. This legislation is specifically about digital services and automated downloads – and by their very nature, you can neither predict nor restrict where they will be sold.

So explaining that it doesn’t affect us if we don’t sell to the EU or if we trade through third party platforms is both insulting and shows your lack of research before you responded – third party platforms are too expensive and it is impossible to choose not to sell to the EU if you sell online.

Additionally, I refuse to give Amazon more business when these rules are supposed to be stopping them – and instead it’s looking like they will funnel lots of small businesses into selling via them so we don’t have the VAT burden.

The majority of my clients and customers are, in fact, UK or US based. But my website exists, and can be searched for, and it is unreasonable to expect tiny businesses to find and pay for the technology and knowledge, software and systems to capture the data required and/or say “actually, you’re trying to purchase from the EU – no, you can’t complete checkout”.

It has also been raised that refusing to sell to the EU, while absurd in the extreme when talking about the internet, could also fall foul of anti-discriminatory laws. Ironic when this legislation discriminates so much against tiny and apparently invisible businesses, but not something most of us would risk.

I’d like to emphasise that though we are tiny, we are all trying very hard to trade and comply with the law – and this law makes our businesses and livelihoods unworkable.

5) Another major issue which you haven’t touched on in your response is the collection and storage of the data.

In 2014, most people expect to be able to buy digital products (particularly from individual sites) without having to give personal data besides an email address and possibly credit card details, though many pay via PayPal to avoid this. Requiring even a physical address is going to cost us sales – research shows that the more information requested at checkout for e-commerce, the higher the shopping cart abandonment rate.

Besides that, for a one-woman business running from my living room with a laptop, the requirements to collect the other data are unreasonable and impossible to comply with, and the ten-year storage means registering with the ICO as a data controller. I simply do not have the knowledge or ability to code my website to collect this information.

Aside from the obvious cost implications (significant when your turnover is as small as mine and other affected businesses’ are) of registering and having extra storage and so on, can the ICO cope with half a million people all registering with them?

6) Many of these tiny businesses run alongside other commitments, for extra income – to stay off benefits when their health doesn’t allow them to work in a traditional pattern, alongside a day job to help save for a deposit on a house, caring for parents or relatives, caring for children, all sorts of reasons. The administrative burden, on top of everything else these business owners are doing, is totally unreasonable. Yet if they close their doors on 31 December, as looks likely, many of them will be claiming benefits in order to survive.

To take another personal example, my father has successfully run a training business for several years. Well under the VAT threshold, but he has customers all over the world, including in the EU.

He does everything from planning to the training to the admin and printing of certificates himself. As his health is less good than it used to be, he and I had talked extensively about recording video versions of his seminars and selling them as pre-packaged courses, so that he can still earn if he becomes unable to travel long distances.

Under the new rules, those packages would become liable for VAT for his EU customers, and the extra admin burden this would place on him makes the new way of working not worthwhile.

I fail to understand why the EU is punishing those who are using technology in innovative ways to grow their business.

7) Again due to the fact that when you sell online, you cannot predict or restrict where you sell to (I can’t stress this point enough, and I feel that having someone who understood the internet on the advisory board when this was drafted would have been very helpful), this legislation will stifle innovation – because hundreds of thousands of businesses (there are currently more than 3.6 million sole traders in the UK, and many of those will have been looking to expand into digital products to grow their business in the next few years. Most will now not bother, because the administrative burden is too high for an untested product.

To reiterate, we are asking for just two key changes to enable us to continue to trade within the law, rather than either closing our doors or breaking the law.

1. A de minimis level (ideally the £81,000 UK VAT threshold) below which businesses would be exempt from the new EU VAT rules on place of supply for digital services, removing the administrative burden and avoiding tens of thousands of them having to close.

2. Micro businesses cannot reasonably obtain and check the 3 pieces of ‘place of supply’ evidence during the purchase process. We therefore ask for an exemption allowing micro businesses to be able to use just the customer’s self-declared address as proof, otherwise we will either have to cease trading or break the law.

Thank you for reading and I do hope this has helped you realise the true extent of the impact – and that you will help us to get the exemptions we need so we can continue to trade.

Yours sincerely,

Carla Watkins


photo credit: Forsaken Fotos via photopin cc

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