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Here's how an upcoming VAT flip-flop could affect small Irish businesses

The Government won’t mind the change – it’s set to receive millions in extra revenue.

Image: Laura Hutton/Photocall Ireland

AN UNUSUAL FLIP-FLOP of tax rules in the European Union has some retailers up in arms.

There are fears it could result in extra costs – and a lot more paperwork – for small businesses.

“This new legislation will cripple, and potentially force into closure, thousands of micro-businesses across the UK – just as this government claims to be trying to make it easier for small businesses to grow and create jobs,” a petition in the UK read.

Currently, if a customer buys anything from an online vendor, they will pay VAT at the rate of the country the retailer is resident in.

From January 1st, this reverses, and so the tax rate of where the customer is resident will apply.

Services included are electronically supplied services such as apps, music, online games, e-books, digital newspapers and web hosting services, mobile and fixed-line telephone services, and radio and television broadcasting services.

The effect on customers and businesses aside, this is good news for Ireland, according to Government.

The system is being changed to target companies setting up in countries like Luxembourg and enjoying the low rate of VAT paid there.

It’s estimated Luxembourg could lose out massively, but Ireland will benefit by an estimated €100 million next year.

Minister for Finance Michael Noonan explained earlier this year:

The reason Ireland is set to gain from the VAT changes is because we are a net recipient of electronic and broadcasting services from other Member States.
In terms of inward supplies, the estimate is mainly driven by 1) UK-based television services and 2) Luxembourg-based electronically supplied services.

For customers, this isn’t too much of an issue, but across in the United Kingdom campaigns have been set up to fight the system, resulting in a u-turn by the government to allow companies under a certain turnover to retain their VAT exemption.

Here in Ireland, the Irish Small and Medium Enterprise association has said at first the system seemed like a shock, but it will actually benefit businesses.

CEO Mark Fielding said while small businesses will have to charge customers more, so will their competitors in other countries.

“Some companies had to compete against others based in Luxembourg, where their VAT system was giving them an advantage over other countries,” he explained.

Now, everyone will be on a level playing field.

He noted it was originally feared that business owners would have to submit VAT returns to each and every EU country where a customer bought a product, but under a new system this is largely automated.

Revenue has set up a Mini One Stop Shop (MOSS). This allows the business to be ‘resident’ for the system in one country, and submit their VAT returns through it. The tax owed is then shared out amongst the relevant countries.

However, this means that a tiny business – for example, someone selling a few ebooks online – will have to register for VAT regardless of their turnover.

Fielding said this shouldn’t be an issue.

“Registering for VAT early is just good business ethics,” he said, and that the long-term benefits registering outweigh the short-term benefits of not.

If you’re serious about business, and if you want to grow your business, the earlier you register for VAT, the better.

Ireland’s standard rate of tax is currently 23%, the eighth highest in the world according to a recent OCED report.

Read: Have restaurants and hotels been reaping all the spoils while workers suffer? >

More: Ireland’s economy flatlined over the summer, but Michael Noonan’s not worried >

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About the author:

Nicky Ryan

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