This EU law has started to destroy the UK’s creative economy

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Over 200 businesses have suspended trading amid a mounting crisis in the UK’s creative sector following the implementation of a new EU law.

Creative professionals and businesses across the economy are being hit hard by a new EU ruling that forces people to charge VAT in the state where the consumer is based.

If you sell online advertising space, e-books, films, music, online games, tutorial products, designs, web hosting and software you are now required by law to charge VAT where the consumer is receiving the product (If they are not a registered business). Even if you are a small company selling 1 VOD download a year, you have to add a VAT charge to your product based on where the customer is in Europe. It gets worse. There are over 70 different VAT rates in the whole of the EU and the only way to charge people is to register for VAT in that country.

HMRC have come up with a solution to help businesses deal with the new changes however in order to access the service you must first register for VAT regardless if you are below the £81,000 threshold, and then for the VAT MOSS scheme.

To make matters worse a majority of e-commerce and credit card payment platforms are not factoring in this new EU law and there is no way for businesses to set 70+ different rates for their products automatically online. Businesses now also have to know where their customer is located in order to prove that they are charging an EU buyer as opposed to an international client based in a foreign market like the U.S. This requires people to make a request for data records with each purchase if those details are not provided in digital transactions. In order to comply, businesses must obtain IP and billing addresses of consumers every time they make an online purchase to set the right VAT rate for the product.

The new law is already having a devastating impact on small businesses and people that simply can’t afford the accounting fees will not sell or suspend payments online, affecting not just EU but global sales.

Creative designer Issy Zinaburg spoke with the Daily Mail about the new ruling and how it would affect her interior design business:

“I had a number of courses planned which would include PDFs, pre-recorded videos and worksheets to show people how to do their own home. But I have now had to scrap a number of products.”

To add to the frustration, big corporations that were targeted by EU lawmakers with this new ruling are now raising their prices across the Eurozone to factor in VAT rate changes and costs associated with making those calculations on all their products. Apple has already begun implementing a price fix that makes their digital products more expensive in the EU than the US.

Design entrepreneur Patsy Thompson told Business Zone:

“We are honest business people who will not knowingly break a law. For now, based on the information that is currently available, we will not be able to sell downloadable electronic products over the internet to anyone in any of the European Union countries.”

The wider impact of this law has yet to be fully felt but the damage to the EU’s digital economy as a whole will be significant, particularly as digital sales expand and people suspend cross-border trade because it is simply impossible to comply with the ruling.

Are you affecting by this new law?

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