Small firms impact: not waving but drowning [Part 3 of 4]
February 18, 2015We have finally reached page A113 of the TIIN, the second half of the table of impacts. In terms of the seven questions, we are now past “what does it cost/raise” to the final three questions which are:
- What will it cost the customer?
- What will it cost the department?
- Are there any other impacts?
“What will it cost the customer” can be a bit hard to fathom if you aren’t used to dealing with TIINs, but start with the section on “impact on individuals and households”. In this case, you could summarise it as:
- Individuals who buy ebooks from abroad will have to pay UK VAT on them
- There won’t be any compliance costs
Now, if you are an individual with a kitchen table business affected by this change you might object to this, but “individuals and households” in this context means “customers” rather than suppliers. The impact on one-woman businesses is covered in the business impact section, further down.
So all of us who buy ebooks – or music downloads, or pdf knitting patterns or any of the other things covered by VATMOSS – will feel the impact because the things we buy will have VAT charged on them at the 20% UK rate and not at, for example, the Luxembourg rate of 3%. But the total amount of that VAT is captured in the “exchequer effect” field I looked at in part 2: the “impact on individuals” field is for any extra compliance costs the individual might incur. And of course when you buy an ebook you don’t, as a customer, have to DO anything to pay the VAT at the right rate. It’s up to the seller to work out the correct rate, charge it, collect it, and hand it over to the tax authorities.
(One of the interesting things about this whole mess has been the lack of any particular interest from small vendors in other European countries. The rates of VAT are here, on page 3 of this EU document. The interesting bit isn’t the main rate. It’s the table of reduced rates on page 4. Books are zero rated in the UK, and so it feels annoying to us that ebooks aren’t zero rated but charged VAT at 20%. But look at other countries. There are very few zero rated items, but many countries charge a reduced rate of VAT on books… so if you’re charging 3, 4 or 5% VAT on books already, why not charge 3, 4 or 5% on ebooks too, to harmonise your rates? Maybe they should just cut the VAT rate on ebooks all round??? As I understand it, you can keep your zero rates but you can’t increase their scope or number. So we haven’t asked for a lower VAT rate on ebooks in the UK because we have a zero rate on hard copy books and we’re afraid that the EU would insist on changing that if we changed the rate on ebooks. Would it be worth paying say 5% VAT on all books to harmonise the rate between hard copy and ebooks? I genuinely don’t know.)
The main thing to note in this section of the TIIN, though, is the “impact on business including civil society organisations” (in other words, the impact on businesses and charities)
Here we have the lovely suggestion that there are only five thousand businesses who will really lose out by the changes.
This is on the assumption that most small businesses will sell their electronic wares via Amazon or another big platform. I already have an outstanding Freedom of Information Act review request asking whether HMRC really can get away with not telling us who they consulted in arriving at their decisions on this issue. But I was always taught that the data used in calculating an impact assessment were subject to disclosure under FoI and I wonder whether it would be interesting to look at just how, exactly, the figures of “up to 34,000 businesses, of which about 5000 are not currently registered for VAT” were arrived at, because from the face of the TIIN it looks as if they have been plucked from the air.
The estimated compliance cost for these businesses is £40 per business per year for the businesses already registered for VAT and £220 per business per year for the estimated 5000 unregistered businesses which HMRC thought would have to join MOSS. Again, that’s not the cost of the VAT itself, just the cost of administering the tax – the time cost of filling in the VAT returns. Even on these figures, 29,000 x £40 plus 5000 x £220 (£1,160,000 + £1,100,000) you get an increase in admin burden just on the very small businesses of around two and a half million a year. The question the TIIN raises in my mind is, does the £300m putative tax raised from the large businesses like Amazon warrant imposing the £1.5m putative admin burden on micro businesses?
tiintax 
Hi Wendy, this blog series if very good… thanks for another great post. Will you be writing about the cost of developing new IT systems and shopping carts in part 4 of this series and/or the cost of lost profits if one has to move to a 3rd party platform. Those are totally horrendous! 😦
Hi Caroline. In impact assessment terms (which includes TIINs) the cost of developing new IT systems would be a one-off compliance cost which should have been included in the “cost to business” section I talk about in this blog post. Lost profits if you have to move to a third party platform… well, I’d have to look that up, because I’m not sure the methodology recognises the possibility of “forcing” you to take a business decision like that, or how it should have been accounted for in the TIIN. In practical terms, I rather suspect they are back of an envelope figures.
Hi again Wendy, I don’t know if you saw the Facts & Figures section on our FAQ page of the website… as far as we are aware HMRC did not consider any sole traders or Ltd companies that were/are not registered for VAT. No one in the UK or the EU seems to be aware of how the Digital Marketplace works! 😦
http://euvataction.org/key-facts/#factsandfigures
Quite! This is where HMRC’s “stakeholder” model breaks down, where there is no organisational “stakeholder” with whom they can negotiate. I’ll be covering this aspect in the final entry.