The number of small firms affected by the EU’s new VAT Rules may be higher than HM Revenue & Customs (HMRC) have predicted according to a report by Enterprise Nation.
The new rules were introduced at the start of 2015 and required UK digital services firms to charge VAT based on the rate that applies in their customers’ countries, rather than their own country’s domestic VAT rate.
In order to help small business HMRC established an EU VAT Mini One Stop Shop (MOSS), which prevents UK VAT-registered businesses from having to register for VAT in each separate EU country.
In 2013 HMRC estimated that around 5,000 non-VAT registered businesses would be affected by the new rules. However, similar research by the Department for Business, Innovation and Skills put the figure at around 350,000.
A report by Enterprise Nation has suggested that HMRC’s underestimation resulted in thousands of VAT liable businesses finding out about the rules within weeks of their implementation.
They claim that HMRC assumed that most EU-trading businesses would be above the UK VAT threshold and therefore eligible to use the MOSS. However, a survey by Enterprise Nation has revealed as many as 8 out of 10 digital micro-businesses were below the UK VAT threshold.
It was also expected that a large number of micro-businesses below the UK VAT threshold would be selling their products through online marketplaces, such as Amazon. However, Enterprise Nation’s survey discovered that around 65% of micro-firms sell products from their own website and only 17% use online marketplaces.