Slow motion car crash
January 20, 2015I’m sorry to keep banging on about the VAT thing. It’s just… compulsive. Like watching a slow motion car crash. I genuinely don’t understand how we got to where we are, and how it is that the tax profession seems to be utterly complacent that everything is working as it should and that small businesses are whinging unnecessarily.
Look at this, for example, via writer and academic Juliet McKenna, pointing out a KPMG report on its research into readiness for the VAT place of supply changes, and its findings that more businesses are flailing than are ready. I particularly draw your attention to its statement that “156 businesses responded including small-sized (less than £10m turnover)…”
In a world where a ten million pound turnover makes you “small”, what price the nano businesses where ten thousand pounds is a good year?
What we are talking about here is administrative burden. “Administrative burden” is a technical term in impact assessment although it’s often simply referred to as “red tape”. Essentially it’s the cost of complying with government regulation, and there’s a reasonably coherent principle behind it. If you or I spend an hour filling in our tax returns it doesn’t cost us actual money; we spend our leisure time on that instead of on reading a book or watching Wolf Hall and we complain but we aren’t left worse off in financial terms. If a business spends an hour filling in tax forms, however, it undergoes an actual cost, because there is one hour of staff time spent on administration that could otherwise have been spent on profit-generating activity.
However alongside that there is a much bigger proportionate cost to smaller businesses than to larger businesses. If a business with a million pound turnover has to spend £1000 of staff time on filling in VAT returns it has lost 0.001 of its turnover. If a one-woman kitchen-table nano-business has a turnover of £10,000, it has lost a tenth of its turnover – and there are viable part time “bonsai” businesses with turnover of £1000 or so, which form a useful supplement to family income, and which will of course be completely wiped out.
I don’t have an answer. But I have some questions, first of which is – where is the tax profession?
tiintax 
To be honest (and speaking as someone who works as a tax person) I think the answer is that the profession is drowning under changes and so are only addressing issues when they have a client affected. If an accountant hasn’t been on a course where a lecturer has told them this is really important, then they won’t be thinking about it. Businesses don’t want to pay extra fees and think if their accountant emails them that all that advisor is trying to do is drum up business. In the end, the system is just too complicated and the profession can’t cope.
I think that’s probably right. But the silence from the tax press on the impact on nano-businesses is probably also driven by the realities of their readership: who reads Taxation and Tax Journal? Tax professionals, not the nano-businesses worst affected. And the worst affected businesses are too small even to warrant paying an accountant or for membership of something like the FSB.
I sell B2B print books and ebooks, but some of my customers are not VAT-registered so I have to treat them as consumers and am therefore caught up in the VAT MESS.
I know Amazon Kindle is handling EU VAT, but I also plan to launch online courses and downloadable PDFs to be sold off my own WordPress website using WooCommerce and a compliant plugin if I can find one.
To discover whether I had any EU customers in the past year, I checked my Kindle account and had to download 12 separate Excel files. They showed I sell almost equal quantities to UK and US, a few to Canada and India, and one (ONE!) to Germany, from which I earned a royalty of about £2.00.
In order to comply with VAT MOSS, the new plugin will cost me at least £35. It just doesn’t add up! And that doesn’t include the hours I’ve spent reading, researching, and finding my way round it all.
Yes, a good example of how the people who designed this didn’t understand how real small businesses operate.
I have written to the Accounting today magazine telling them about this as I am a tax professional and hoping that they would not only reply but also offer to print something so that we could get more leverage at how ridiculous this is and how much it is going to hurt so many people. As of today – I am still waiting… Hopefully I will get a response.
Good luck with that!
From my experience the accountancy profession’s response has been “you’re a business and you should have known about it.” Scratch below that answer and you find that it’s grounded in sour grapes over not having been hired by the people affected by VATMOSS to provide accountancy services.
(I am one of those affected and so far my EU VAT kitty is £1.36 due to Malta for one ebook sale. And those bitter accountants wonder why they weren’t hired?)