This has caused “chaos” and could lead to a hike in costs for digital services, according to small business network Enterprise Nation.
The Revenue estimated that there were just 5,000 non-VAT registered firms that would be likely to be affected by the new VAT MOSS rules, which concern the trading of digital products in the EU. The new rules, require all companies, including those exempt from UK VAT, to charge VAT on all digital products such as ebooks, at the rate charged in the customer’s country.
The Department for Business, Innovation and Skills however estimated that there were 350,000 working within the affected space.
A HMRC spokesman insisted, however, that the Revenue stands by its initial estimate. The value offered by HMRC represented just those which would be affected by the rules, not the thousands of businesses which trade via the internet, the spokesman said.
Enterprise Nation said in its report that the confusion impacted how the information was communicated which meant small firms under the VAT limit which were trading their digital products in the EU only found out about the new charges a matter of weeks ahead of their implementation.
Emma Jones, Enterprise Nation’s founder said, “The EU VAT regulations 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.
“As it was, not even the marketplaces themselves had prepared new software or worked out the finances."