21 January 2015

I'll make this as interesting as I can, but it's one of the more complex of the issues that I have been asked to look into since being announced as a prospective Parliamentary Candidate, and the more I found out, the more unintended consequences appeared.

Recently I had the opportunity to ask a Senior Government Minister a question on small businesses, at an event organised by a business group of which I'm part. Now, when I say 'small business', I don't necessarily mean those with six employees and a £500,000 turnover, or even sole traders making a scant living doing something entirely solo; there are also, you see, very many micro-businesses out there as well, 'nano-businesses' if you like, and I happen to run one of them.

Anybody who has started to make a little money from a paying hobby, whether that's designing knitting patterns or writing plays for schools, or selling mp3s of their music, or writing books that they publish online, or any one of many other different enterprises, is effectively running such a business. These are usually so far under the UK's £81,000 VAT threshold that they're able to keep their administrative burdens light, while still selling digital 'goods' online to anyone anywhere in the world. These people design fonts, and model railway layouts, and training systems, and software plug-ins, and often their business isn't even their whole living, or it may be a start-up, testing the market for the thing that they produce.

Now, it went around the nano-business community a few weeks before Christmas that a change in VAT regulations was going to affect these businesses – so, many of us went looking to see what was afoot. We learned that from 1st January, all online sales of digital 'services' (which are defined in such a way as to include just these kind of products that I've mentioned) are to pay VAT, not at the seller's local country rate – but, crucially, at the buyer's.

Are you with me so far? As I heard Vince Cable say yesterday, 'I am not a tax expert.' Well, and nor am I, and nor are all the other nano-business-owners who run tiny enterprises from their kitchen tables, legally and simply trading their – often creative – work across national boundaries, because that's how the internet works.

In order to ensure that VAT is paid at the buyer's local rate, the seller has to know where they are, and hold two non-conflicting proofs of that securely for ten years – and sign up for VAT, either in every country in the EU, or else in the UK through the system that HMRC have set up ('VAT MOSS', they are calling it) – four annual returns for tiny businesses that may already wrestle with self-assessment every year-end.

It's a matter of representation, really. Just as we'd like those making policy on housing to have lived in properties other than owner-occupied two-million-pound houses, just as we'd like those making policy on education to have some experience beyond private education (I addressed Education yesterday at the Pilgrim Centre, where I was on the panel of a Question Time-style event hosted by the NUT), I think we'd like those changing the rules for small businesses to properly understand that some small businesses are really very small indeed – too small, in this case it seems, for those making the rules to see – too small for an accountant, a tax specialist, an IT department or anything beyond the spare hours the business owner puts into their work – often to supplement a family income, or keep off benefits, or augment a pension.

Many of these businesses have already been frightened into closing over this Christmas season. Many more have mothballed expansion plans that risk bringing them within this rule's remit. Others have been driven into the arms of the huge international platforms that readily have the resources to handle the VAT for the seller – at a significant cost, of course – those very businesses whose tax-minimising habits were apparently what the rule change was supposed to remedy.

Consumers are affected too, as many overseas businesses have decided – as the rule is supposed to apply to them too, be they in Canada, the US or Malaysia, or anywhere else outside the EU – that it's simpler for them to block EU sales altogether. Others are ignoring the rule on the basis that they consider it unenforceable.

It turned out that the Minister at the business event was Vince Cable, so I asked him what he's going to do about this. His and his department's failure to safeguard the VAT threshold, under which most of us thought we were secure, is causing small, previously viable businesses to close, or operate at a disadvantage, or be driven to giving much of their income to whatever third party platform will handle the VAT for them. He said that he's visiting Brussels 'to see about this' – our South West Green MEP Molly Scott Cato has already been raising this issue in Brussels, so I hope he'll liaise with her while he's there.

I believe that those making policies on all issues and at every level ought to do so with an awareness of the variety and reality of those who will be affected. If you don't think your elected representatives speak for you, if you think they are missing experience that's relevant to the changes they're bringing to your lives, then you have the option of telling them and hoping they will listen – but you also have the option, in a few months, of changing them for a more representative set of people, with a more diverse set of life experiences.

Talis Kimberley-Fairbourn
21st January 2015

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