Archive for the ‘VAT’ Category

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Bread and butter

October 9, 2018

The hopelessness, it gets to you.

You look at the world, at politics, economics, climate change, and you think, it’s all so big and so hopeless and so utterly, utterly fucked that there’s just no point in anything…

Nevertheless. Insert platitudinous inspirational meme here. We can’t go on. We go on.

Anyway. Did you know we have a Minister for Small Business? Well, actually a Parliamentary Under Secretary of State, Minister for Small Business, Consumers and Corporate Responsibility? It’s Kelly Tolhurst MP and she’s only been in post since July of this year, so I suppose we must let her off.

Because small businesses are being screwed. Again. Well, not small businesses, as such, but micro businesses. You know, the ones who aren’t represented by the CBI or the FSB, the ones which barely have a need for an accountant let alone someone to read policy documents for them and represent them at HMRC “Stakeholder” groups.

In the beginning there was administrative burden, which is the cost of dealing with the government – not the money the government takes from you in taxes etc, but the money it costs you to comply with the regulations they make like filling in the necessary forms to tell them how much tax you’re going to have to pay. And the UK had the highest VAT threshold in the EU because that took bazillions of micro businesses out of VAT and cut the administrative burden by gazillions.

Then there was Amazon, who hoovered up the business of selling ebooks and they did it from a low-VAT-on-ebooks jurisdiction. So the EU introduced rules to make the VAT chargeable where the buyer was located, not the seller, and in solving one problem they created another, because there were a load of authors who sold their ebooks directly from their own websites rather than paying a substantial proportion of the turnover to Amazon or another platform.

Because those authors (and the knitters selling patterns and the musicians selling sheet music and the trainers selling online courses…) weren’t represented by any “stakeholder” group and because neither HMRC not the EU did due diligence on the impact on micro businesses, no-one realised they were literally unable to comply with the legislation as originally envisaged, well, they were fucked.

Fair play to the micro businesses of Great Britain, though, because they got together and lobbied their little hearts out and crowdfunded to go to Ecofin in Dublin and lobbied the EU and… won. There’s a €10,000 Euro turnover threshold below which the new rules won’t apply, so Amazon and the like are hit but the one-woman kitchen-table business isn’t. Result?

So you might think.

The legislation comes into force on 1 January 2019. Unless something happens, the UK leaves the EU on 29th March 2019. The micro businesses of Britain have a whole 87 days to trade legally and friction free.

After that? Not only do they not get the concessionary treatment for micro businesses and the simplified system for small businesses, they don’t even get the “benefit” of being able to transact via the VATMOSS system with the protection of HMRC between them and the other EU fiscs. They become “non-union” traders and are expected to work out the rate of VAT applying in the location of their customer at the exchange rate on the day of the transaction…

It’s rubbish, and (according to the campaign group) the British government haven’t even asked for relief, or for a continuation of the de minimis threshold, after Brexit.

Oh, and there’s talk of lowering the VAT registration threshold. Because the one thing we need from Brexit is more red tape and administrative burden, right?  I mean, right?

Dear Kelly Tolhurst MP, can you please remember the very smallest businesses and look at the VATMOSS mess?

I can’t even. It’s worse than the music hall. The circus. The music hall.

 

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Office of tax complexification?

June 5, 2018

You have until a minute to midnight tonight (11.59pm on 5th June 2018) to comment on the Treasury’s call for evidence on the VAT registration threshold. (There’s a quick-and-dirty online survey you can fill in here if you haven’t got the time or inclination to read the whole thing.)

Now, this was published in March so why haven’t I commented on it till now? You may also have noticed that I haven’t been around here for a while. As I tried to explain to people who came to listen to me at Accountex a couple of weeks ago, it’s basically because the early drafts of this post started off as strings of expletives and then devolved into those random streams of letters you get when you bash your head repeatedly on your keyboard and plkfdje gjkiuht uhirsge whi4u5b

Ahem.

I am not a fan of this concept.  To put it mildly.

Here’s where we are, according to the condoc.

The threshold is a simplification measure that keeps businesses with a turnover at or below the threshold from having to register and account for VAT. This tax simplification benefits around 3.5 million businesses, over half of the UK business population.

Businesses with turnover below the threshold can choose to register for VAT, and there are approximately 1 million voluntarily registered businesses. Only around 1.2 million businesses (out of about 5.7 million total businesses) are above the VAT threshold.

To me, this is an “it ain’t broke” proposition. Small businesses don’t have to engage with VAT till their turnover is over £85,000 but they can if they want to and it benefits them.  A turnover of £85,000 is not, of course, a profit of £85,000 and it seems unlikely that a business with a turnover below that level is supporting more than one or two people from its profits.  Larger businesses object that the imposition of VAT distorts competition, but then they would, wouldn’t they.  The main driver for change seems to be the idea that the

relatively high level of the threshold has a distortionary impact on business growth. This is because of the phenomenon of ‘bunching’, where small businesses deliberately limit their turnover to remain below the threshold.

Personally I’m intensely relaxed about people being intensely relaxed.  You get close to the VAT limit, think “sod this for a game of soldiers” and take a month off.  And?  So?  Whose business is that?  Do you live to work, or work to live?

The consultation explains that the threshold will remain at its current level, but that the intention is to “consult on whether the design of the threshold could better incentivise growth.”

Well let’s see, shall we?

First, there’s an EU proposal to bugger about with the threshold to make it less of a cliff edge and yes I’m aware I’ve put several metaphors in a blender in this sentence but it’s that kind of proposal.  So instead of £85,000 = no VAT, £85,001 = VAT, the proposition is there would be a 50% cushion. If you blipped over the limit but by less than 150% of it as some kind of one off (one big order, say) then you would be ok, or if you went over the threshold by any amount but for more than one year then again you’d have to register.  There would also be a “union cap” of €100,000 turnover so countries couldn’t opt out by making their VAT registration limit infinity minus one, and there would be some fiddle faddling simplified invoicing stuff for businesses over the threshold but not over €2m turnover.

Is that better? Well, there are circumstances – the One Big Order scenario – where you might save money I suppose.  But your business growth would hardly be incentivised by the knowledge you could weasel your way out of having to do VAT if you faffed about with your turnover to keep under the 150% and one year rules, and your business admin would hardly be simplified by having to muck about calculating which scenario would leave you better off.  So no, Socrates, I do not believe this fulfils either the policy objective of incentivising growth nor the original policy objective of the high UK VAT threshold, of reducing the administrative burden.  It is a Bad Idea.  It is, moreover, a Bad EU Idea and what the heck are we faffing about with Brexit for if not to liberate ourselves from Bad EU Ideas?

Next (4.8 in the condoc) the OTS have suggested “administrative smoothing” and again (in 4.9 et seq) “financial smoothing”.  (Small pause for head bashing on keyboard again).  Repeat after me: options are not simplification.  Allow businesses six months instead of three to do their first VAT return, or allow them to use a two year period rather than one to compare their turnover to the threshold, or different rates of VAT for different levels of turnover, and they’ll just faff about trying to make the figures come out the way they want them to rather than just getting on with it.  If your policy objective is, seriously, “to change the behaviour of businesses that take measures to remain under the threshold” then just (a) declare the threshold is £100,000 and will remain unchanged for the life of this parliament and (b) invest a couple of million in employing customer service practitioners in HMRC to go out to businesses and offer to get them up and running with VAT as soon as they hit 90k and (c) carry on doing the stuff HMRC already does to combat the obvious splitting business type avoidance activity.

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Good news

December 2, 2016

You couldn’t make it up.  A small band of angry women, about to lose their small businesses because of a piece of legislation that they knew nothing about till it was right in their face, angry that the legislation had been made by people who knew nothing about them and hadn’t done the due diligence to find out they even existed, take on the might of HMRC and the EU tax authorities…

… and win!  Yes, the VATMOSS campaign has won its objective of having a sensible threshold to protect small businesses and allow them to grow.  Here’s the press release from the EU yesterday:

To simplify VAT rules for startups and micro-businesses selling online, VAT on cross-border sales under €10,000 will be handled domestically. SMEs will benefit from simpler procedures for cross-border sales of up to €100,000 to make life easier;

The full proposal is here, and there’s a rather good impact assessment here.  Let’s just take a moment to sit back, pop a bottle of our favourite beverage and, well, rejoice!

Now… it’s only a proposal at present, not settled legislation.  So the usual advice is to lobby your MP, your MEP and anyone else you can think of, in order to get it through ECOFIN and into practice.

Question: will the Brexit brouhaha make a lobbying effort from the UK more, or less, likely to succeed???

 

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Small firms impact: not waving but drowning [Part 3 of 4]

February 18, 2015

We 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:

  1. Individuals who buy ebooks from abroad will have to pay UK VAT on them
  2. 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?

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Small firms impact: not waving but drowning [Part 2 of 4]

February 5, 2015

A TIIN is supposed to answer seven questions.  (They are here in the TIIN instructions – the TIIN instructions still aren’t published by HMRC – and why not??? – but let’s assume the basic principle is still the same as “in my day”.)

The questions are:

What are you doing?

Why are you doing it?

Why are you doing it this way?

What will it cost/raise?

What will it cost the customer?

What will it cost the department?

Are there any other impacts?

“Why are you doing it” is a powerful question in the “better regulation” mindset, which basically reflects a worldview in which regulation is a Bad Thing in and of itself.  The idea is that regulation is nothing more than Red Tape, which would be Strangling Business unless it was itself regulated.  “Why are you doing it (at all)” is really the question, if you think that having no regulation at all is the ideal.

So why is the government doing MOSS at all?  Well let’s see.  The policy objective field of the TIIN (still on page A111) is where the answer ought to be, and it says:

Policy objective The measure will make business to consumer (B2C) supplies of BTE services taxable where they are consumed, thereby removing an incentive for businesses to locate offshore. This will level the playing field for UK BTE suppliers and is consistent with the Government’s aim of fairness in the tax system. The MOSS business simplification scheme is intended to reduce the administrative burdens and costs associated with this rule change and multiple VAT registrations for BTE suppliers, particularly for small and medium enterprises (SMEs).

Translated into English, I think this means there are two objectives:

  1. The main objective is to stop big companies from gaming the system by setting up shop somewhere with a low VAT rate.  Instead of VAT being charged where the supplier is located, from January 2015 it is charged (for electronic services like e-books) where the customer is located.  So small companies should have a more “level… playing field… consistent with the Government’s aim of fairness…”
  2. Because this change comes with associated costs for small companies, there will also be the “mini one stop shop”, the MOSS, which stops you having to register for VAT separately in each member state and instead handles it all in once place, the place the seller is located.

Now, I think the objectives are good ones in themselves.  Let’s make it easier for authors to sell their own works, for craftswomen to sell their own knitting patterns, for musicians to sell their own tunes, directly to the customer without having to lose a slice of their profits to a multinational selling for them.  And, yes, let’s keep the administration as simple as possible.

So what went wrong?

Let’s go back to the TIIN, to the summary of impacts that starts at the bottom of page A112.

Screenshot 2015-02-05 14.14.50

The first line shows you how much money the government expects to get as a result of this change.  The numbers are in millions of pounds, and the plus sign means the government expects to get this much tax in from the change.

The first few months of 2015 are still in the 2014-15 tax year (the tax year runs from 6th April one year to 5th April the next year).  So between January 1st and April 5th 2015 the UK government estimates it will make £70 million in VAT from the changes.  In a full year, it thinks it will make an extra £300 million plus, with the numbers rising over time.

I think we can all agree three hundred million is a sum worth having.  For the government, it’s the cost of, say, the entire NHS radiotherapy service (table 9 page 28, 2011-12 figures).  But look at this: “The MOSS element of the measure is expected to have a negligible impact on the Exchequer.”

Now, I understand “negligible” in an impact assessment to mean “less than £100,000 across the entire affected population”, which is what it used to mean in 2012 when I was last working for the government.  But have a think about that.  The entire farrago of MOSS is expected to bring in less than a hundred grand?  Seriously?

Because one of the seven questions written into the tax original impact assessment proposals, and which was still there when I obtained the TIIN instructions and published them on my blog, is

why are you doing it this way???

Why the hell are you imposing this business-busting system on people from whom you expect to raise peanuts, when you’re still going to get the moolah you want from the big businesses it’s really aimed at?  Is this really the only way?

Option appraisal is one of the key elements of impact assessment methodology: generating and assessing all the possible ways of solving a possible policy issue and then choosing the best one, even if it’s the option to “do nothing” – that’s how governments tell themselves they solve problems.

So where is the options appraisal in this TIIN?

Don’t bother to look.  It isn’t there.

Look instead at the assessment of the economic impact.

This measure should have positive economic impacts by minimising distortions to the location of the economic activity and increasing competition between large and smaller suppliers within the sectors affected.

Well perhaps it “should”.  In an ideal world it would.  But in this imperfect world, HMRC completely overlooked the one-woman kitchen-table microbusiness and introduced a system which, far from “minimising distortions” and “increasing competition” will in fact wipe out the micro businesses or else drive them into the arms of the very businesses whose behaviour caused the policy problem in the first place.

A proper options appraisal might have included:

  • excluding micro businesses from the regulation altogether
  • allowing a longer lead in time before the regulation affected small and micro businesses
  • unilaterally setting a threshold below which the regulations do not apply
  • making payment processors legally responsible for operating the regulation
  • devising a MOSS which itself operated as a payment processor for micro businesses (instead of a paypal or worldpay etc button you could have a MOSS button – your money would come to you VIA the government, but come to you guaranteed VAT-compliant)

There might have been good reasons for and against any or all of these.  But if you don’t ask the right questions of the right people, well, you’ll never know, will you?

 

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Small firms impact: not waving but drowning [Part I of 4]

February 4, 2015

Let us all wave to the House of Commons *waves* and then again to the House of Lords *waves*, our law makers.  Let us ask them to look again at a couple of the bits of paper that have been put in front of them and which have gone through on the nod.

Let’s start here, with a parliamentary question asked by David Morris, the Conservative MP for Morecambe and Lunesdale, on 22nd January.  Now I know nothing about Mr Morris beyond his website (the government has a Hairdressing Council?  Seriously?) and his wikipedia entry (and I can’t say I’m that sanguine about the veracity of all of that!) but Parliament.uk, usually a reliable source, gives small business as one of his interests.

So good for him, asking about the VATMOSS assessment of the impact on small business.

David Gauke’s reply was to refer him to the TIIN, published (on page A111 of the package of TIINs published on 10 December 2013 to accompany the draft clauses of the 2014 Finance Bill)

Let’s pause for a minute while you open up another screen, click on the link, and find page A111.  You might want to print it out, because we’ll be referring to it a fair bit over the next couple of entries.

Now to start with, what are we looking at here?  What is a TIIN?  Well I happen to know, because I was in the team that kind of accidentally invented the TIIN, when I was in charge of the Impact Assessment programme for tax measures.  An impact assessment is a formal document assessing the costs and benefits of making a regulatory change, and don’t get me started there (that’s what my PhD is about, amongst other things) and has to be done according to fairly strict protocols.  If you’re interested, there’s a hundred and eight pages of guidance you can access from this link (It was only 95 pages in my day).

At the point the coalition government came into office, there was a proposal to change the impact assessment template to make the format much tighter – to compel you to put an actual number to the costs/benefits and to put the numbers into the same format, essentially so that BIS could track the numbers across the whole government.  But that kind of impact assessment isn’t particularly helpful for tax changes, because the amount of tax raised or foregone is normally much greater than the administrative burden of the change itself.  So there was a lot of internal civil service politics around whether tax changes should be in or out of the new system, and this coincided with the move to improve the process of tax policy making itself, and the outcome was the invention of a tailored tax impact assessment process… but at the last moment the Treasury decided they wanted to combine the tax impact assessment with the Budget Note which HMRC used to produce explaining tax changes, and so we wound up with the Tax Information and Impact Note, the TIIN.

The TIIN, then, should explain what is being done and why, and include an assessment of the costs and benefits – to the exchequer, to the “customer”, and to HMRC.  It should also give the outcome of any other impacts which have been assessed, including equalities and other impacts to which governments have committed themselves (see the list on page 34 here and on page 66 here)

So.  David Gauke is telling us – is telling Parliament, in fact – that this TIIN contains the government’s assessment of the impact of the VATMOSS changes.

Let’s see what it says then, shall we?

First of all, look at the bottom of the first page, “background to the measure”.  This says:

Background to the measure

The measure was announced at 2013 Budget. Business input has been provided through joint business/HM Revenue & Customs (HMRC) groups.

Now, if you have been following the #VATMOSS #VATMESS hashtags or the articles in Taxation about POSMOSS you will know that one of the principal complaints of the micro and nano-businesses whose kitchen table businesses are likely to be wiped out by the change is that they were completely overlooked in the consultation process.  So who was representing small businesses on these “joint business/HM Revenue & Customs (HMRC) groups”?

I honestly don’t think that’s an unreasonable question to ask.

So I asked it.  On November 25th last year I sent a friendly email to the person who is named as the contact on HMRC documents, saying that it might well just be my google-fu was lacking but I couldn’t find the minutes of these meetings online as I’d expect so could he please point me to them?  I thought it was more than likely that the links was buried somewhere on gov.uk but just in case it wasn’t, I said if they weren’t yet published, would he please consider this a Freedom of Information Act request?

I had no reply.  But then I’d guessed at his email address (HMRC email addresses are usually in the format firstname dot lastname @hmrc.gsi.gov.uk but they can vary, after all) so on 11 December I put the request in formally via the HMRC Freedom of Information Act “portal” and had an acknowledgement telling me that

A response is being prepared and the statutory deadline is 13 January 2015.

On 21 January I sent another polite reminder asking why I hadn’t had a reply yet.  And on 30th January I received a reply.

Apparently

The external membership consisted of: Publishing: 3 small businesses Online Gaming: 2 small businesses Digital Services: 4 small businesses Other sectors/organisations: 3 representatives

but

I do not consider that there is a particular public interest in releasing the names of the micro or small businesses/organisations involved.

Now just a minute…

There used to be a handy page on the HMRC website that listed all the consultative groups, with links to their minutes and memberships.  It’s not there on gov.uk (well if it is, I haven’t found it yet!) but some individual groups are.  Look, here’s the Joint Customs Consultative Committee, the Research and Development Consultative Committee, the Joint VAT Consultative Committee (which, oh look, discussed MOSS on 8th May 2014…)

Are we seriously arguing that it’s a secret who the government talked to about introducing VAT MOSS?

No-none is planning on descending on the consulted businesses with pitchforks and torches – no responsibility resides with someone being consulted in answering for themselves and their own knowledge.  But there is a HUGE responsibility on HMRC and other government departments to ask the right people – to seek out and talk to the affected businesses.

Yes, I’ll be following up the FoI request – watch this space – but the arrogance (or defensiveness?) of saying there’s no public interest in knowing who HMRC consulted with, when the whole point of the outcry is that there are large numbers of people saying “I’m affected!  Who was representing me?”…. well, I think it’s just staggering.

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Google-fu

January 7, 2015

I subscribe to various things on the They Work For You website, and one of the interesting things that popped up today was a written question to David Gauke on the VATMOSS problem:

Stephen McCabe, Shadow Minister for Education, asked “what assessment his Department has made of the potential of the changes which come into force on 1 January 2015 on VAT rules for small and micro businesses in the UK which sell digital products to other EU member states.”

To which the response is “I refer the honourable member to my reply to his question number 219172”

Now, maybe I’m just having a bad day, but I’m genuinely baffled.  I can find the question 219172, but I’m hornswoggled if I can find the answer!

I’m not hopeful it’ll be anything other than blah blah blah, but I’m an impact assessment specialist and if I can’t find it, what chance do the rest of us have?  Someone like the friend I had lunch with, say, who doesn’t actually have an internet connection at home?

They work for us, right?

(But if anyone out there can find it, please post a link in the comments!!!!)