Planning to set up an online business selling digital products to customers in the EU? Forget about it. A new EU regulation which came into force on 1 January has rewritten the rules for VAT on digital products, and will disproportionately hurt British small and medium businesses. They will force anyone selling goods online to register to pay VAT to the country buying the good in the EU, not country from where they are supplied.
This means British businesses will not benefit from Britain’s high VAT threshold, set at £81,000 of turnover. The threshold is now set at £0. Small and medium firms, business owners and entrepreneurs selling goods online to EU customers must register to pay, not 1 but 28 different rates of VAT. The new rules spell a nightmare of burdensome red tape and paperwork.
The geniuses who authored this legislation intended to curb tax dodging by online web giants like Amazon. However, in typical thoughtless EU-fashion, the rules will crush small traders and novice online entrepreneurs, while the online titans like Amazon, who the rules were intended to rein in, will only be mildly inconvenienced.
It helps to understand how online giants avoid paying their taxes in the first place. It should surprise no one the EU facilitates tax avoidance on a large scale, by virtue of the workings of the Single Market and the pseudo-federal nature of the EU. Though the EU is composed of 28 Member States, it is a Single Market which in theory, is without borders. A multinational corporation serves the Single Market rather than the British or the French market, but they pay British or French rates of VAT and corporation tax, which can vary wildly. A multinational company needs to have its headquarters based in one of the Member States, and it should surprise no one they are attracted to countries with low rates of corporation tax (like Ireland and Netherlands) or outright tax havens (like Luxembourg, from where our current EU President Jean-Claude Juncker hails).
The EU claims their rules will help “level the playing field” for small businesses. Rather, these rules are now too complicated for small businesses to cope with, while bigger players can shrug them off with ease. It has been reported over 200 firms have announced they will shut down, simply because they can’t comply with these new VAT rules.
Unfortunately, these rules will also put many amateur online traders out of businesses, especially housewives who run small businesses selling goods online to support their families. Disabled people will also be hit hard. These vulnerable groups and tiny businesses can’t lobby EU Commissioners to draft favourable rules, unlike tech giants, but the EU will make them comply with the same rules which apply to giants like Amazon.
This sorry tale reinforces our distrust of Brussels and the very notion unelected bureaucrats should have any say on how our Britain’s economy is run. We can still retain access to the Single Market without being part of it, but it is imperative our sovereignty is restored.
Any government which comes into office after the General Election must prioritise easing the burden of red tape on small and medium businesses and levy taxes fairly and equally. There is only one solution: Get Britain Out of the EU.
This article is crossposted on The Commentator.