New EU VAT legislation threatens UK SMEs

New VAT legislation that is due to come into effect on 1st January 2015 could be damaging to UK micro firms, according to SME owners.

The legislation is associated with the VAT paid on digital products, which covers a major sector of small businesses in the UK. The new rules intend to prevent multi-national corporations that trade online from diverting their sales through low VAT countries.

The new legislation will see VAT charged in the place of purchase rather than the place of supply however SME owners claim new changes will hurt small businesses selling digital services such as e-books, e-courses, music and audio downloads.

The are currently 460,000 sole traders around the UK suggesting that these changes will effect a large sector of the UK’s economy despite the new legislation being created in order to prevent larger firms from avoiding high tax payments.

As small businesses may be unable to make the high payment costs of paying VAT in the country of purchase the legislation may prevent SMEs from trading digitally which could stop the huge growth that small companies have seen in recent years.

Digital products are now an important product for the UK market. With technology changing so quickly it is essential that small businesses are able to keep up to date however these VAT changes could see business owners put off from switching to digital products, which could be damaging in the future.

For more information on the exact guidelines of the new EU VAT rules on digital products visit the HMRC website.

MCC Accountants are accountants in Eccles that specialise in small business accounting and tax advice offering services such as financial, payroll and company support. If the new EU VAT regulations effect your small business and you would like some advice we will be happy to help, call us on 0161 707 1500 for more information.

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