Dr Molly Scott Cato – a Green Party MEP and economist – has called for a Europe-wide VAT exemption for businesses with a turnover of less than €100,000.
An EU VAT regulation came into effect on 1 January 2015 to curb widespread tax evasion by multinational corporations – but critics say the new put too large an administrative burden on smaller businesses.
The changes mean VAT on digital products sold in the EU will be chargeable in the place of purchase rather than the place of supply, meaning SMEs must now collect VAT from up to 28 different EU states at around 75 different rates.
Dr Cato has criticised the government for not adequately preparing small businesses for the new rules.
Dr Cato said:
“Many who run micro businesses or are sole traders are telling me that the new rules make their business unviable. It is tragic that the entrepreneurial approach shown by so many should be undermined by a policy which, while having laudable aims, has such serious flaws.”
HMRC have already made one concession, agreeing in December that businesses who can separate their UK sales would only have to pay VAT on their cross border EU sales.
But many do not think this is enough. An online petition, with over 22,500 signatories at the time of writing, demands that the UK VAT threshold be applied to all EU sales.
This would mean that companies with an annual turnover less than £81,000 (~€100,000) would be exempt from paying VAT on any of their sales, cross-border or otherwise.
Dr Cato said:
“It seems to me that the simplest way out of this situation, and for these businesses selling digital products to continue to be viable, is to allow countries the option of introducing an exemption for businesses with a turnover of less than €100,000.”