HM REVENUE & CUSTOMS significantly underestimated the number of small- and micro-businesses affected by the EU’s VATMOSS rule changes, according to business lobby group Enterprise Nation.
The rule-change means companies trading e-services with EU countries must charge VAT at the native rate of the customer.
While HMRC was expecting its Mini One-Stop Shop (MOSS) to solve the problem for most – ie those above the UK VAT threshold – but the Enterprise Nation found eight out of ten digital micro-businesses fell below the UK VAT threshold.
Around 15 months prior to the introduction of the rules, an HMRC investigation put the figure of non-VAT registered firms likely to be affected at 5,000, while the Department for Business, Innovation and Skills (BIS) said 350,000 enterprises could be affected.
However, HMRC claims its number is a subset, with BIS simply referring to businesses that trade online – regardless of size.
Enterprise Nation founder and CEO Emma Jones said the changes have “caused havoc in the digital small business community”.
“If details of the new charges and reporting responsibilities had been communicated earlier, we’re sure there could not only have been more opportunity to make amendments to the bill, but that an entrepreneurial solution to the problem could have been developed,” she said.
An HMRC spokesman said the department “regocnises there are hundreds and thousands of businesses that trade via the internet but a much smaller number were affected by the new rules.
“Our estimate was around 5,000 non-VAT registered businesses could be affected and so far just over 2,100 businesses in total have registered to use VATMOSS.
“We recognise that the smallest businesses are finding these changes difficult and we are providing them with support and guidance and taking a light touch approach to compliance.”