Business Law & Compliance

62% of small businesses not aware of European VAT changes

2 min read

10 November 2014

VAT rules for sales of telecoms, broadcasting and e-services to EU consumers are about to change. From 1 January 2015, VAT will no longer be charged based on where the business supplier is established but according to the EU country where the customer belongs.

However, KPMG research suggests that 62 per cent of small businesses do not know about the new rules, while 66 per cent are not aware of the potential penalties associated with non-compliance.

Amanda Tickel, tax partner at KPMG, said: “The new rules mean affected companies face an increased compliance burden and billing becomes more difficult to manage.

“In the first instance, businesses need to ensure their systems can capture the right sort of information to evidence where each customer lives and apply the correct VAT rate. Coupled with this, those affected urgently need to decide how they’ll report and pay the VAT.”

But the changes should be good news for the UK economy because the VAT collected from UK customers will belong to the UK Treasury, rather than to the country where the supplier is established.

“The majority of e-services bought by UK consumers are currently not subject to UK VAT as many of these e-services are currently sold from countries such as Luxembourg where the VAT rate is very low,” explains Tickel.

“This means the UK Treasury could benefit by around £300m from 2015, but someone has to lose; either the suppliers of affected services will see significantly reduced profit or consumers will see increased prices as some of the extra VAT cost is passed on. Our survey strongly suggests that price rises will form at least part of many businesses’ responses.”

For some businesses, the answer to handling the compliance burden associated with the changes to the VAT rules may be to stop selling to certain customers altogether. Indeed, 28 per cent of affected businesses are considering limiting sales in EU member states to reduce their compliance burden.