New VAT rules a threat to firms’ internet trading

SMALL Scottish businesses trading over the internet are being forced to turn down thousands of pounds of foreign business because of new European Union rules aimed at ­preventing tax avoidance by the likes of Amazon.

New rules were brought in to try and avoid Amazon-like tax avoidance. Picture: Alex Hewitt

From 1 January, VAT on what the EU deems “digital services” will have to be charged at the local rate to the buyer and firms will have to ensure the money is paid to the right treasury.

The system is designed to provide a level playing field and prevent large multinationals minimising their liability by routing all their sales through low-tax jurisdictions such as Luxembourg – but is set to create a bewildering ­tangle of red tape for small traders that is already dissuading many from seeking custom overseas.

HM Revenue & Customs has put in place a system called “mini one-stop shop” to help British sellers, but it can only be used by firms which are registered for UK VAT. However, many small firms, and the likes of musicians and authors selling their e-books or albums directly from their own websites, have long enjoyed the ­option of not registering if sales are below the threshold.

The Federation of Small Businesses (FSB) said members have been getting in touch over the issue, with some warning that they may abandon the digital marketplace altogether.

Colin Borland, the FSB’s head of external affairs in Scotland, said: “There’s no doubt that [the new rules] are causing real alarm amongst many of our smallest businesses. We have been contacted by businesses who say that they may well stop trading online as a consequence.

“When the government is urging us to do more business online and get exporting, I’m sure this is the last thing they would want.”

Perth-based businessman Alex Urquhart-Taylor said his website firm Roslin Design was already turning away potential customers from the rest of Europe.

“We can still design sites because ironically that is not an e-service,” he said. “Hosting them, however, would not be allowed, and for us to design without hosting is ridiculous and impractical.

“It simply won’t be worth the cost in terms of time and money.

“We’ve already had to turn down several European clients this week because we wouldn’t be able to afford to work with them under the new rules.”

SUBSCRIBE TO THE SCOTSMAN’S BUSINESS BRIEFING

• Get the latest business headlines from a variety of news sources emailed to your inbox each morning