Over the past few months lots of constituents have been in touch with me about a change to EU law that was really worrying them.
This change was that, for people who sell certain products online, the whole system for paying VAT was about to change.
At the heart of the law, originally negotiated by a Labour government, is an admirable aim: to make the European tax system fairer. Previously, companies selling digital services could base themselves wherever the tax system most suited them: so companies selling products to British people could base themselves in Luxembourg and pay just 15% VAT, instead of the 20% VAT that they should be paying in the UK. This is unfair, and means the British government loses out on money that could be spent on better public services.
So the new law - which came into effect on 1 January 2015 - compels these companies to pay VAT on the place where the product is sold, not on where the company is based. A good move and another step on the long road to tax fairness.
The problem, though, has been the unintended consequences for people who are not multinational online retailers, but individual entrepreneurs seeking to make a living from selling things via their websites: people who produce pdf knitting patterns, or who design apps in their bedrooms. Often these people are supplementing low incomes that they get from elsewhere, or are selling things online because it enables them to stay at home and care for young children or disabled relatives. They are disproportionately likely to be women.
Before this new rule, these people did not need to pay VAT at all. The UK does not ask people who earn less than a certain amount per year to pay VAT on their sales. Back when this new law was being negotiated, the then Labour government argued that this exemption should stay for small and independent British traders. Unfortunately, this exemption did not make it into the final law.
The upshot is that a lot of people who have never had to pay VAT before now find themselves liable for it in all 28 Member States of the EU. This would be a huge challenge for people at the best of times, even with the complete support of the British government.
Sadly, these aren't the best of times and people haven't had the full support of the government. In fact, the Conservative-led government offered hardly any advice or support for people until a few weeks before the legislation came into effect, and then when they did it was piecemeal and contradictory. Those individual traders who are trying to make some extra money selling things online have been left confused, upset and angry. I can understand why.
That's why I, and my Labour MEP colleagues, have tried to seek as much clarification for people as possible. I have sent my constituents detailed answers to their questions where I can. We have written to both the responsible UK Minister, and the European Commission, asking them to introduce emergency measures to support those small and 'micro' businesses that are trying to navigate this new law, and to consider what more can be done. The whole thing has been very badly handled, and we are determined to do all we can to ease the situation for those people affected.
If you are on online retailer, and are concerned that the new law may affect you, then here are some links that might be helpful:
And if you have specific questions that are still unanswered, then you can email HMRC at firstname.lastname@example.org or call them on 0300 200 3701.