The really major f-up is that of online sellers (it's a major pain for sellers of physical goods as well, it's just easier for them to at least know which country they're selling to) who did absolutely nothing during the entire process of creating and implementing this change, and only now start to whine when it's way, way too late.
The reasoning behind the law is perfectly logical, and the problem they're trying to solve very real. The actual implementation utterly impractical, and a major burden on pretty much everyone.
But the only people who could have told the political dinosaurs and clueless civil servants just how impractical chose to pretend the change would somehow magically just go away.
This is one piece of legislation that could probably have been stopped or redirected quite early on, if those affected had just bothered to try.
How about: If those affected had even known that this change was happening.
I'd certainly heard that they were changing the VAT rules to crack down on the likes of Amazon. That I'd now need to charge VAT based on country of consumer. That's not the crappy part of the legislation as I currently don't need to charge any VAT at all in the UK.
I hadn't heard that my VAT threshold was being invalidated
I hadn't heard that I'd need to keep records for 10 years (currently the longest I need to keep anything is 6 years).
I hadn't heard that I'd need to register as a Data Controller (as I now need to store personal info for 10 years). This leaves me liable for massive fines if anything goes wrong security-wise in the next 10 years.
It's basically a massive cockup that was targeted at Amazon, Google, Apple and the like, but has instead hit small business startups and independent traders the hardest.
Good points, awareness certainly is an issue. I found out a few months ago and just finished updating the payment system for my site. I have learned a few more interesting gotchas:
- You are responsible for verifying the location of your buyer (how? who knows!)
- It is not enough to know the country code of your buyer. For example the Canary Islands have country code ES but have a different VAT rate from mainland Spain
- Some VAT rates can be fractional, so you can run into problems if you were using integer calculations in cents to prevent rounding errors (thankfully, for digital services all VAT numbers are round number starting this year, let's hope it stays that way)
- If you register for a MOSS then you pay VAT in euros, but you may have charged your customer in a local currency (GBP, DKK, CZK or SEK). You need to use the exchange rate at the day of the sale
This is just the top of my head, there are probably a bunch of minor issues I forgot.
- If you register for a MOSS then you pay VAT in euros, but you may have charged your customer in a local currency (GBP, DKK, CZK or SEK). You need to use the exchange rate at the day of the sale
I'm not sure this is exactly correct. For the UK, the guidance[1] at the moment says:
"If you charge or invoice customers in a currency other than the one used by the MSI and you record that price in your accounts in the foreign currency, you must:
- convert it into the MSI currency at the end of each quarter
- use the conversion rate published by the European Central Bank (ECB) on the last working day of the quarter
However, if to meet VAT invoicing or other accounting requirements you convert the foreign currency into the MSI currency using an agreed published daily or monthly conversion rate, you can use this converted figure when completing your quarterly VAT MOSS return."
In the above, "Member State of Identification (MSI) is the state in which you’ve registered for VAT MOSS."
So it looks as though there are three possibilities here:
1. If you charge customers in your own native currency, then you just have to apply their location's tax rate on the transaction, instead of applying your local tax rate as at present.
2. If you charge customers in their own currency (or any other that isn't your native one) then you have two options:
2a. You convert the amount charged to your native currency at the time of the charge, and use that figure and the customer location's tax rate to calculate the tax due.
2b. You record the transaction in its actual currency at the time of the charge, and then later you convert to your native currency according to the standardised exchange rate published by the ECB at the end of each quarter, use that figure to calculate the tax due, and use these figures when you file your MOSS return for the quarter that just finished.
But I'm not an accountant, and like many here I've spent too much time in recent weeks just trying to get straight answers and figure out what all the "guidance" really means, not to mention trying to find out minor details like what the current tax rates to use for each location actually are (including variations within individual member states) and how we're supposed to keep up with any changes in the future. So don't take my word for anything, I'm just trying to interpret some official guidance like everyone else...
Interesting. I got my information from calling the tax authorities and ask, but I'm based in the Netherlands so their guidance may be different from that in the UK.
Doesn't the Netherlands use the Euro? If so, then I think the information we have been given is consistent. For you, the MSI currency would be Euro, while for me in the UK, it would be GBP. Each of us would pay any tax due to foreign tax authorities via our own country's MOSS in our local currency, but if we charged a customer in a different currency then we would have to convert it in one of the two ways I mentioned before.
The really major f-up is that of online sellers ... who did absolutely nothing during the entire process of creating and implementing this change, and only now start to whine when it's way, way too late.
And what exactly do you think an affected seller should have done if they had no reason to know these changes even existed?
Certain government representatives have been claiming that they have provided information and notified businesses. However, right now the Internet seems to have no shortage of small businesses who claim they had never heard of this change until very recently. I can certainly understand that: I personally run two businesses that could potentially be affected by these changes, both already VAT registered, yet I have no indication that our government has made any attempt to notify either company in any way about these changes.
Even some on-line payment services and marketplaces appear to have had no idea, and it looks like some won't be able to support the required taxation and record-keeping in time. These are the very organisations that many people in governments seem to have assumed will fix the problem because according to them almost every micro-business uses one!
This is one piece of legislation that could probably have been stopped or redirected quite early on, if those affected had just bothered to try.
I'm not convinced it would have helped even then. This is the same EU that imposed those mandatory cookie notices. More recently, they pushed through consumer protection regulations that mean if someone wants to buy a digital download and gives you their money today, the default is that you must not actually provide the data to them for two weeks, among other similarly unhelpful-to-anyone measures.
No doubt some of these measures were promoted with genuinely good intentions, but it is clear that the people writing the laws and regulations are completely disconnected from the realities of running a small business. It will be literally impossible for a lot of small businesses to comply with the letter of the law under some of the new rules.
The biggest irony of them all is that the most likely beneficiaries of these changes are... big US businesses, specifically those which function as on-line marketplaces and have the resources no small business does to investigate and comply with all the new taxation and reporting rules and to put up a serious legal fight if they are formally investigated for failing to do the impossible.
I run a VAT Registered business and we had one notification of the change of place of supply - despite the fact that we already do cross-border sales and allow our customers in the EU who have a VAT number to deal with VAT under the existing reverse charge rules. So we knew about it, but could have easily missed it.
The people who didn't know about it are those it is the worst for. Small traders who were not VAT Registered. There is no reason why someone below the VAT threshold should be poking around in VAT legislation just in case it will suddenly apply to them. When I wrote this post (http://rachelandrew.co.uk/archives/2014/10/13/the-horrible-i...) in mid-October, there was next to nothing online, other than in a few PDFs from tax experts. Certainly nothing that would have alerted non VAT registered individuals selling a few knitting patterns and so on. To blame those people, and suggest they were sticking their head in the sand is wrong. They didn't know.
>> "imo the major f-up is removing the tax threshold for selling digital goods - even if you sell a £1 kintting pattern you have to register for VAT now."
You mean you have to pay VAT even if you earn under £69,000 (I think that was the threshold last I checked)?
This is effectively impossible to enforce though, at least for foreign sellers; is that a fair assessment? I'm really not seeing any mechanism whereby the EU could actually force them to pay their taxes when they're selling goods that don't physically exist. Small arts and crafts need to be shipped, software does not.
I guess they could pressure payment services (Paypal, Dwolla), but Bitcoin could always be used as a fallback- it's also VAT exempt or at least appears to be from my quick searches on the subject.
I could see tax authorities going after consumers that are not paying VAT - they reside in the EU and are easier to prosecute than foreign companies.
In the past in the United States, the providers (such as Amazon) have placed the burden of paying state taxes on the consumer - I wonder if they could, somehow, also make the consumer responsible in this case and thereby continue to operate in the same manner?
In fact lots of people assumed that the marketplaces would take the heavy lifting here. However most of them are US-based and have said they won't be the ones to take care of this.
However, part of the problem is the authorities assuming that everyone sells through marketplaces, and that marketplaces would be the ones to tackle the issue. You'd be surprised how many people this is going to affect who are just selling a few items with PayPal - and PayPal cannot supply the required data to comply.
imo the major f-up is removing the tax threshold for selling digital goods - even if you sell a £1 kintting pattern you have to register for VAT now.