Business Finance: Wayne Neale explains changes in VAT payments

Wayne Neale of Larking Gowen.

Wayne Neale of Larking Gowen. - Credit: Archant

If you are in the business of delivering content online to consumers in the EU, eg ebooks, online media and software, new years day is potentially going to bring on the first major headache of the year, even for non drinkers.

From January 1, 2015, the VAT will be due to be paid in the country the customer is established in and not the suppliers country as now.

Should you be in this business and trading under the VAT threshold of £81,000, meaning you are exempt from paying VAT, the headache is going to be even bigger.

This is because VAT registered sellers will be allowed to use a simplified scheme to declare and pay the VAT due in the 28 member states. However, people trading under the UK’s £81,000 exemption limit will be denied use of this scheme, rendering them liable to be VAT registered in every member state they make sales of this nature too. The alternative is they can elect to be VAT registered and then use the special scheme.

A business with total sales of £70,000 including £30,000 of these types of sales to, say, France will be around £11,000 worse off if the special scheme is used and £5000 worse off if a VAT status is set up in another country. These are not insignificant sums to a small business.


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There is simply no exception to paying VAT from January 1, 2015 on these types of sales to private customers, even if you enjoy an exemption from tax currently on turnover grounds and even if you make a single sale from your premises in Timbuktu.

Worse still, there is a plan, recently confirmed in a release from HMRC, to extend this new system to ALL sales to EU private customers, including sales of goods. It is not unfair to say that the ability to avoid paying VAT on sales to EU consumers is likely to be severely restricted in future and there is no reason to believe that domestic sales cannot also be dealt with on a universal basis.

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This will render the current £81,000 threshold completely impotent, which would impact a massive number of businesses in the UK that believe the UK does not require them to pay VAT if their sales are below the threshold. Firms are bound to feel let down by HMRC, who, year on year, increase the VAT threshold for small businesses but at the same time introduces measures that directly attacks that exemption.

For more information contact Wayne Neale on 01603 624181.

: : Wayne Nele is senior manager for VAT at chartered accountants Larking Gowen.

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