Doom, Gloom and #VATMOSS

While I’m busy with my day job in Canada, Juliet McKenna and her colleagues are beating their heads against the brick wall that is Whitehall. Juliet’s latest post is here, and in it she explains how HRMC found a solution for her problems. It involved sacking her existing publisher, who was clearly incompetent, and instead signing up with one of those outfits that will charge you £500 to make an ebook (which they probably do by automated conversion). I guess if you are making that amount of money off the gullible then you can afford all of the administrative nightmare that is VATMOSS.

The trouble, as Juliet makes clear, is that the people she is dealing with don’t have a clue. Not do they seem to think it is at all important.

If Wizard’s Tower were my means of making a living then I’d be a lot more sanguine about the whole thing, though if my net income from it was around £12k/yr (which is approximately what I earn from the day job) then the addition of at least £1k/year in dealing with VATMOSS would not be very welcome.

Our beloved government, however, thinks that a small business is one with 200 employees and an annual turnover of £30m. Single-person businesses, of which there are around 4.6 million in the UK, are barely on their radar. Many of those single businesses will have difficulty surviving VATMOSS.

However, the businesses that will really suffer and the countless (literally, as we have no idea how many there are, because no one has bothered to count them) businesses like Wizard’s Tower that don’t make enough money to support even one person full time. The annual turnover of Wizard’s Tower in my last annual accounts was around £5k, and the business made a loss that year because it bore most of the costs of Airship Shape & Bristol Fashion while enjoying little of the revenue from it. Add £1k of admin costs to that and you are in serious trouble.

The nice gentlemen in Whitehall don’t seem to think that this is a serious business. If you can’t even provide the livelihood for one employee, what right do you have to call yourself a business? Who cares if you go to the wall? From my point of view it would not matter than much, because I have such slim profit margins (thanks, Amazon, for competing with me). Other digital businesses might bring in their owners a few thousand a year. What does that pay for? It might mean the difference between being able to afford a holiday or not; it might mean nice Christmas presents for the grandchildren that you couldn’t afford on a state pension; it might mean not having to go on benefits because your job at Tesco doesn’t pay enough to cover the rent and feed the kids. Naturally all of this seems like something out of a Dickens novel to someone on a fat civil service salary. They don’t believe that it happens.

And then there’s the other thing. Most of the people involved in this campaign are women. Most of the people we are dealing with are not. We know that their understanding of ecommerce is woefully lacking. We haven’t even tried explaining the crowdfunding issue to them, because it would be like telling them we were cloning dodos for all they would believe such a thing were possible. But from their point of view it is a clear case of the little ladies not understanding technology, and if only they would stop nattering for a while and listen while someone mansplained the Internet to them, why then their problems would all go away.

Head. Desk. Repeat.

13 thoughts on “Doom, Gloom and #VATMOSS

  1. What’s a business that makes £3000 worth? When a friend of mine had her first child, she wanted to stay home but they were short of money. She and her husband worked out the earnings and cost of her going back to full-time teaching. Once they’d paid for childcare, they were only £3000 a year better off – in return for her working full-time and their little girl being in full-time care. Instead, she decided to pursue her dream of voice-acting and set herself the target of making £3000 a year. She was able to get work for downloadable podcast dramas and teach herself the production side with online courses – while being the stay-at-home mother she wanted to be.

    Once you factor in childcare costs, £3000 a year can be a full salary.

  2. I’m obviously missing something. I looked at HMRC’s advice on VATMOSS and it looked straightforward. You pay £35 to register for VAT and once a quarter you send HMRC a list of your European sales and the VAT charged and you pay that amount to HMRC. You also fill in a form to say that you haven’t made any other VATable sales.

    1. You are missing:

      1. You need to keep these records manually, or buy software to do it. Time & money. And probably you need to hire an accountant, at least for the first year, to ensure that you don’t make any mistakes.

      2. Many of the platforms we use don’t provide sufficient information to satisfy HMRC’s requirements, so we can’t use them any more.

      3. Because of the nature of the information we are required to gather and keep, we’d need to register under the Data Protection Act, with all of the responsibilities that entails.

      And finally I understand that some businesses have been trying to register and HMRC has turned them away saying that they are too small.

    2. Oh, and also, unless we go through the trouble and expense of setting up two legally separate companies, we end up being registered for VAT for everything we do in the UK, even if it is not digital sales. This would be essential for me as my day job is a sub-VAT-threshold business that doesn’t do digital sales.

  3. Having looked at the information that HMRC requires I can tell you that there is nothing in it that requires data protection registration, which in any case is trivially easy to do. The information that they ask for is part of the information that credit-card gateways collect automatically as part of the card verification process.

    If your software platform doesn’t provide the information then it’s dead in the water as of January 1. That is a real problem but whoever provides the platform is either going to fix it or go out of business by the end of this year. Either get your platform provider to update the system or replace it at your current provider’s expense. You have about two months to complete that.

    As for HMRC refusing companies that are “too small” now THAT is a real problem. But if you offer to register and HMRC refuses the money I would say that you have done what was requested. Just make sure to write to HMRC telling them what you have done, make it their problem not yours.

    It’s not too difficult or expensive to manage or administer more than one entity. But if the business has enough turnover to be one person’s “day-job” then it should probably register anyway. You have to register when turnover reaches £81k but it’s advisable at much lower levels than that.

    Lastly, there’s a little wheeze which might simplify the paperwork. If the business is primarily supplying to individuals rather than companies it can charge a VAT-inclusive price. This saves having to offer different prices in different countries.

      1. It’s quite possible I will want to set up my own e-commerce site and haven’t yet decided how to do it. I took a look at what HMRC wants expecting the worst. I didn’t find it. The information they want is what I would be collecting anyway. There isn’t any onerous reporting requirement that I can find, just a web page to be filled in once a quarter. If the doom and gloom subject line is justified then the facts as reported so far don’t show that. There must be more to it than you have said so far.

    1. HMRC have specified that we do need to register as data controllers. Microbusinesses are not equipped to store this data safely. Even if I could get the data, and register with ICO & change my servers, email, etc by 1 January, I would be accessing sensitive personal data from my home laptop and storing paper copies in my home study. This is massively inappropriate and would create a hacker’s field day. The list of affected businesses includes people selling the following: ebooks, quilt patterns, card designs, PDFs, comics, digital brushes, podcasts, art videos, digital stamps, desktop wallpaper, digital art books, crochet designs, jewellery tutorials, personal-style guides, apps, hypnotehrapy downloads, organisation charts, illustration licences, knitting patterns, coaching programmes, glass-bead-making tutorials, cross-stitch patterns, how-to courses, papercraft templates, online courses for schools, music MP3s, and business contracts. To expect all these microbusinesses to have corporate-level IT safety is absurd.

      Secondly, though, we can’t even get the data. The payment providers will not supply the data we need. PayPal, by far the biggest payment provider, has made this clear: I cannot collect the data I need, therefore I cannot sell. I am not alone in this: according to the EU VAT Action Survey, 60% of affected businesses sell direct to their customers. Again, looking at the types of businesses affected, it’s unreasonable to expect them to all have their own ecommerce solutions.

      Platforms that will do the data collection & payment for us are springing up, but a) that adds another layer of cost to businesses that already operate on miniscule profit margins, b) it is not yet clear who is legally liable if they get it wrong.

      1. If HMRC are telling you that you need to register as data controllers and that you are handling sensitive personal data they are in all probability wrong on both counts for most businesses. You certainly need to comply with the data protection act but that doesn’t require registration and the same requirement applies to everyone whether VAT registered or not. Daily backups and a sturdy lock on the front door handle most compliance issues. Unless you are supplying medical devices or similar your customer data is not “sensitive.” The Data Protection Acts cover three different classes of data. Your own customer data is the least sensitive of those because it is not considered personal let alone “sensitive personal.” Customer name and address details are not sensitive and so you don’t need to register as a data controller unless you are being paid to provide data-processing services for someone else or if you really are handling sensitive data. Sensitive data includes things like information on named person’s criminal convictions and medical history.

    2. OK, I’ve stopped rushing around the world for a while. Let’s take a look at some of this.

      Firstly, looking at what is on HMRC’s website is probably a waste of time, because they are changing their minds on a regular basis with regards to what is required.

      Second, as Megan notes, it is HMRC that is telling us that we need to register for data protection. I also spotted this post from a law firm today. Of course it is entirely possible that they are all wrong are your are right, but perhaps you might be inclined to take the issue more seriously if it is not just a bunch of women who are saying this.

      As to your comment about platform providers, that’s exactly the sort of Little Englander idiocy that has got HMRC into this mess in the first place. Online commerce is not a UK business, it is not even an EU business, it is a global business. Many of the services that people rely on that the moment are based in USA. Technically they have been required to conform to this legislation since 2012. They haven’t done so, and show no sign of going out of business. I don’t expect them to do so in January either. They don’t have a problem, because no one is going to force them to do what the EU wants, and they have plenty of business even if all EU businesses stop using them.

      Of course it is entirely possible that EU-based companies will try to fill the gap, but they are not there yet. For example, there are UK-based crowdfunding platforms, but as far as I can see they have all been caught on the hop by this as much as everyone else. And even if they did provide a VATMOSS-compliant service, I wouldn’t want to use them, because this is a global business and you stand far more chance of succeeding in crowdfunding if your campaign is on a market leading platform as opposed to one most people in the world haven’t heard of.

      Then again there is PayPal, who as Megan notes will not supply sufficient information for a business to be VAT-compliant. Yes, there are other payment gateways that you can use, but mostly they charge higher fees and none of them are as well known.

      I’ve not tried registering with HMRC myself, and have no intention of doing so. However, it is pretty clear that HMRC is floundering here. The government’s own assessment service has deemed the VATMOSS website unfit for use, and it was designed with HMRC’s idea of a small business in mind, not for the vastly larger number of much smaller businesses that are caught up in this.

      It isn’t that difficult to register a business as a legal entity. I’ve looked into it on a couple of occasions. However, if you do so, it is necessary to have properly audited accounts. You may think the cost of that is trivial, but it isn’t as far as my budget goes. Nor is it necessary for a business that has no assets other than a bank account. I’d like to avoid that trouble and expense if I can.

      As to whether I should register my consultancy business for VAT, again I have looked into it and decided not to. I submit that I might possibly know my own business requirements better than you do.

      And finally, yes of course we can offer a VAT-inclusive price. I’m going to have to on Amazon, because that’s all they will allow me to do. Other platforms may require me to quote a price exclusive of VAT and will add the local taxes on top of that. It all depends on how their software works, and how customer-friendly they want it to be. Generally in the EU prices should be quoted inclusive of tax, and that means if you have a website you have to either guess a VAT rate to use and stick to it, regardless of whether the customer turns out to live, or you have to gather all of the customer’s details before quoting them a price. The latter option is guaranteed to piss off a significant number of potential customers.

      This then leaves me with the problem of having to explain to my authors that I have no idea how much their books will sell for, because it all depends on how much VAT ends up getting taken off the price.

      Of course you may well be much smarter than me, and all of this will be trivially easy for you. I’m pretty sure I could do it myself if I really had to. After all, I’ve been self-employed for a long time. But it seems crazy to me that I should have to. The time and effort involved on everyone’s part doesn’t seem to justify the likely revenue. But a huge number of the people caught up in this are running part time businesses and I’m not in the least bit surprised that they find the whole thing hugely off-putting.

      Goodness only knows what will happen in a few years time if the same bureaucrats responsible for this carry through their plans to require everyone who sells anything on eBay to register for VAT.

      1. There are a lot of points here and some I’ll need to do some more research on. But I’ve set up ecommerce web sites and managed customer data under the Data Protection Acts right back to the first one. I can’t answer some of the points but can get some of them out of the way. I’ve dealt with the data protection issues in the reply to Megan.

        Next: audited accounts, recommended but not required. An accountant is also recommended but not required. When I set up a limited company my accountant promised me that he would save me more money than I paid him in fees.

        If you quote a fixed VAT-inclusive price you don’t need to do the VAT calculation until you submit the tax return, by which time you know the destination country and rate to apply.

        There does seem to be a problem with PayPal. They do collect the required information but only supply a code calculated from the two required pieces of information (Road name and postal code.) But the EU is the world’s largest economy and yes we can slap PayPal around until it does as it’s told. My guess is that other EU countries have settled for collecting the information that PayPal provides and HMRC hasn’t got the memo yet.

        I’ve got some of the EU guidance notes. They include some quite sensible comments about the inability to cover all possibilities because technology changes so fast. HMRC is in ass-covering mode and wants to apply the letter of the law. In the past they have been known to accept “reasonable efforts” at compliance. They have very few staff and want a quiet life. Don’t hand them problems, hand them solutions.

        1. We are all well aware that HMRC is flailing. Most people simply aren’t prepared to take the risk of not doing what they are being told to do. After all, many of us are not cis white men and therefore don’t have the luxury of assuming that those in authority will deal with us fairly.

          In any case, I have wasted quite enough of my time on your arrogant and condescending comments. Kindly go away and sneer at someone else.

        2. I look forward to you actually trying to run a micro-business under the new rules and reporting on how you get on. Do let us know if all of the information that a bunch of other people have been getting from HMRC and raising red flags is wrong. But until you actually try to do it, this sounds like a bunch of ivory-tower theorizing as opposed to the people who are actually running a business, albeit a small one, and being trampled by a regulatory process that has difficulty comprehending that a business could even exist that doesn’t have millions of pounds of turnover and hundreds of employees.

Comments are closed.