Small businesses forced to close as new EU VAT rules come into force

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The chimes of Big Ben did not signify a happy new year for some small companies as they claim they have been forced to pull services or shut down completely as a result of new European tax laws.

From today, businesses which sell automatically downloadable digital products and services such as ebooks and online courses must charge VAT in the country in which they are purchased.

Originally designed to prevent big firms like Amazon and Google from diverting sales through low tax countries, the rules also affect the smallest companies including those below the £81,000 VAT threshold in the UK.

Micro-business owners have taken to social media to announce that due to the red tape involved in complying with the regulations, they have been forced to close or prevent customers in EU countries outside the UK from buying products or services.

Design company entrepreneur Patsy Thompson wrote on her blog: "We are honest business people who will not knowingly break a law.  For now, based on the information that is available currently available, we will not be able to sell downloadable electronic products over the internet to anyone in any of the European Union countries. We regret having to take this step but we have an obligation to respect laws that govern how we do business."

Ben Tasker, who sells digital downloads, said he has been forced to close his shop because "the additional overhead involved in compliance means that running the shop will likely no longer be financially feasible".

Similarily war gaming company Battlegames also shut down at midnight on 31 December and crochet patterns firm Mumbles Mummy has been forced to adjust the way it sells products. "I just don't have the strength to share what has been an horrific few months of researching, petitioning, hassling MPs, contacting programmers and altering all kinds of things to try to make the transition into being compliant with this new EU Law," the founder wrote on her blog. 

HMRC has attempted to help entrepreneurs deal with the changes by setting up the VAT Mini One Stop Shop (VAT MOSS) which allows businesses to automatically register for VAT in all 28 EU countries.

But campaigners say confusion over the data entrepreneurs need to get to prove where their customer is based and a lack of clarity over the responsibility of payment providers like PayPal and online marketplaces like Etsy means many micro-businesses are set to suffer.

The protest is focusing around the EU VAT Action campaign led by Claire Josa.

Several petitions attracting thousands of signatures have been launched and the group says it has made close contact with officials at HMRC and the Treasury in an attempt to deal with the impact of the law on small businesses.

Earlier this week the campaign group said it won a concession from HMRC which has allowed companies to use evidence from payment providers as evidence for proof of supply until the end of June.

BusinessZone is monitoring the impact of the new EU VAT laws in our special section.

About Dan Martin

About Dan Martin

Dan Martin has 10 years experience as a journalist writing about entrepreneurs and the issues that affect them.

After three years working as a researcher for Sky News, he joined BusinessEurope.com as a reporter. This was followed by two years working as news editor for Startups.co.uk during which time Dan also contributed to Growing Business magazine. In 2006, he joined Sift Media as business editor before being promoted to editor of BusinessZone.co.uk. He also has responsibility for UK Business Forums, the UK’s most active online forums for small business entrepreneurs. In addition, Dan founded The Pitch, BusinessZone.co.uk's nationwide competition for small business owners. He host the grand finals in 2009 and 2010 in front of an audience of 300. 

As well as interviewing many entrepreneurs, Dan has written content for leading business organisations such as the Department for Business, Enterprise and Regulatory Reform, British Chambers of Commerce, Forum of Private Business, Investors in People and Business Link for London. Among the publications that have quoted Dan are The Times, Mail On Sunday, Financial Times, Personnel Today and Bristol Evening Post. His articles have also been published by publications including eGov Monitor, Virgin Express in-flight magazine and Personal Success.

Dan regularly speaks at events about small business and social media issues. Among the events he has presented at are the National Federation of Enterprise Agencies' annual conference, Learning Technologies, Publishing Expo and World of Learning. He has also chaired high profile debates featuring senior representatives from Business Link and the Federation of Small Businesses and Dragons' Den judge James Caan.

Dan was named the 10th most influential political blogger on Twitter by the Independent and won the public award for best B2B tweeter at the Golden Twits 2010. He also organised the Bristol Twestival, part of a global Twitter driven charity initiative, in February 2009 and March 2010. Volunteers from 175 cities around the world organised events using the social network. In total, $350,000 was raised for charity: water in 2009 and $500,000 for Concern in 2010. In Bristol, £1,500 and £5,600 was raised.

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