Thousands of small businesses to be hit by 2015 EU VAT changes

From January 1 2015, e-service merchants that were previously exempt from value added tax (VAT) registration under UK law may could fall within the rules.

The changes mean providers of business-to-consumer (B2C) broadcasting, telecommunications and e-services will have to pay VAT in line with the country the customer is based in. Currently, VAT is calculated by the location of the supplier.

Existing UK rules mean businesses with turnover of less than £81,000 do not need to become VAT registered with HM Revenue and Customs (HMRC). However, the EU changes have no minimum threshold.

HMRC has estimated around 42,000 businesses that are not VAT registered could be affected.

Technology provider Taxamo has warned the majority of businesses affected are not prepared for the change and could face large fines for non-compliance.

John McCarthy, CEO of Taxamo, said: ‘Every day we are taking calls and answering enquires from merchants who are confused by the new rule changes and don’t understand what they need to do to comply.’

Businesses will be responsible for identifying where their end customer is located by collecting two pieces of ‘non-conflicting information’ and applying the correct VAT rate.

There are also rules on reporting VAT receipts, storing VAT transaction information and ensuring compliance with VAT rules across the EU.

The size of penalties companies could face will be dependent on the country the firm should have paid tax in.

Mr McCarthy added: ‘The sad part here is that even if a merchant is unaware of the changes, through no fault of their own, it will be them that will suffer.’