The Blog

Small Business: EU-Expendable or Economic Engine Room?

The biggest assault on our small businesses for many years seems to have slipped through the public consciousness. I was aware of it, of course, but until very recently I had failed to grasp the sheer scale of it.

The biggest assault on our small businesses for many years seems to have slipped through the public consciousness. I was aware of it, of course, but until very recently I had failed to grasp the sheer scale of it.

Big business, of course, loves much of the Brussels system. They have the money and resources to lobby the Commission and Parliament, which of course no small business can realistically do. Brussels has more lobbyists than Washington DC (hint: that's not actually something to be proud of) and so big business is able to manipulate EU legislation in ways that the others simply cannot. This is where I fail to understand the mindset of the Left of British politics in respect of the European Union. They remain pro-EU despite the fact that the EU is the friend of everything that they hate: globalisation, big business and the corporatist agenda.

I'm writing about something which is putting small businesses in my constituency and all over the country out of business. It all sounds so very straightforward, and it seems to have come out of the idea that Amazon and other companies trading online should be made to pay their fair share of VAT in every country. So far, so good. You might agree or you might disagree but even if you disagree, you can see the Commission's reasoning. The days of companies plumping for the country with the lowest rate of VAT would be over. It may not be the most effective means of improving the tax system, but it's a simple one.

Simple, that is, up until the point of implementation where each country now has a 'VAT Mini One Stop Shop' (VATMOSS) scheme to enable all the different VAT incomes to be distributed to the relevant country. Businesses obtain a VAT Registration Number (even if below the threshold for VAT in the UK), add VATMOSS as an additional service, travel through the minefield of whether they have any allowable expenditure that can be offset directly against non-UK sales and submit a cross-border VAT Refund Application, complete a quarterly VAT return and a quarterly VATMOSS return.

In all of the lobbying, the large companies were strangely quiet. I don't recall massive lobbying asking the Commission and MEPs to stop this Regulation coming into existence. Why not? The big corporations were clever enough to spot what I missed (I have an excuse, I suppose, as a newly-elected MEP finding my feet in a new place): that small businesses would be sunk by the new rules, and it would leave big business with a huge competitive advantage.

As an MEP, there are three basic kinds of correspondence that I receive. There are mass mailings from various organisations, companies and charities which are sent to lobby all MEPs. Then there are the standard letters from constituents - often a campaign group will have a standard letter which they ask all of their supporters to send to MEPs. I may receive a hundred such emails, all saying exactly the same thing (some are more clever, with subtle changes in wording to make it look like they're all different). I write a standard reply, and change it slightly where necessary. It gets my attention more than the mass mailings, because I know that it represents the views of certain members of the public who I represent. But it's been driven by the campaign organisation. The third kind of correspondence comes from members of the public, unprompted. The people who have a problem, and feel that they have nowhere else to turn but to their MEP (and/or MPs and councillors). Their letters are heartfelt. I have to admit that these letters influence me more than any other type: as an MEP I'm here for ordinary people.

I've had letters from constituents about the new rules which show the damage it's doing. From the software developer to the vinyl seller, they say the same thing: they're below the VAT regulation threshold in the UK, so they don't charge VAT at all. But now, they can't sell goods in Europe without having to charge VAT. So they will have to deal with the new VATMOSS rules with the Treasury, taking up considerable time for a small business - perhaps hours each week for a 1- or 2-person business. The rate of VAT can be as high as 25% in some countries (Hungary is even 27%). One little point that I'd missed was that the cost of shipping will also be subject to VAT, making the situation even worse - and hypothecating the amounts that can be reclaimed may cost more in time than any money refunded.

In those circumstances, what is going to happen to the small business? The chances are that they will either stop trading with Europe altogether and hope to survive on their UK business, or they will go bust. Few small businesses can cope with such a hike in prices and administration time.

I wonder how many businesses across the UK will now go bust. The pro-European Union argument has always been '3 million jobs depend on Europe'. They are wrong, and they have always been wrong. The jobs in fact depend upon trade with the EU, not on the EU itself. That's why Switzerland, which isn't in the EU, exports 4½ times as much per capita to the European Union than we do. Being in the EU isn't necessary to be able to trade with it.

For years UKIP have been arguing that outside the EU we could develop our global trade links, trading not just with little Europe but the whole world. But now it seems that even our trade with Europe is under attack. Small businesses should be the engine room of our economy; the small business of today could, if properly nurtured, be the big business of tomorrow.

For a while I wondered why I didn't recall this matter coming before the European Parliament in my time as an MEP. The reason is that it didn't: Directive 2008/8/EC provided the framework, with a Commission proposal in December 2012 setting a start date of January 2015. The matter has been waiting in the wings, a ticking timebomb for nearly seven years.

I have submitted a written Parliamentary question to the Commission on this subject, asking them at the very least to put forward proposals to exempt businesses with a small turnover from this legislation. I don't hold out much hope. In one Directive dating back to 2008, hidden away in the mass of EU legislation, our ability to trade with Europe has been undermined.