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VAT Changes on 1st January 2015.

There are to be changes in rules for the sale of digital products that will be implemented on 1st January 2015. I run a small business that currently sells limited numbers of digital products but increasingly is seeking to move into this market.

I’m aware that the different VAT rules across Europe mean that some larger providers and sellers have been able to set up operations in low VAT countries to supply digital products. They have therefore been able to compete with a price advantage for consumers against local vendors. Further I understand that these changes are intended to stop this practice by making supply of digital products and the VAT associated with that sale related to the VAT rate in the country of the consumer.

That theoretically benefits our situation by allowing us to sell to consumers in the UK at the same price (including VAT) as those companies that operate from low VAT Countries. 

However, the changes make it administratively uneconomic for us to operate in Europe and as a result we will be withdrawing from the European market for digital products sold to consumers from 1st January. We are aware of a number of other small businesses making similar choices. That cannot have been the intention of the legislation.

The new rules also apply to all foreign countries exporting into the European union yet their own sales tax rules for exports may still apply. It seems highly likely that we will make products more expensive and more onerous to sell in Europe than elsewhere. I anticipate the withdrawal of supply from many businesses for whom business in Europe simply becomes too hard. That will adversely affect the supply side of businesses like mine that utilise digital products; we’ll have less choice and higher costs.

This change will also require everyone selling digital products in Europe to register for VAT through a European country and use their systems to distribute the VAT due to the rest of Europe. The worlds biggest markets tend to be English speaking and I am concerned that the UK could be come a tax collecting body for Europe. Even with automation, the UK could end up with a net administrative cost within HMRC that’s puts the original problem into the shade. 

Our personal view is that in a “common” market goods provided across borders should always have the same rate of VAT applied to them, whilst still allowing supply within a single country having its own rules. The changes being applied mean there are a plethora of rules, and rates, to maintain awareness of, and with no minimum threshold. That’s going to bring many more businesses into VAT and increase their administrative costs and decreasing competitiveness. In a small business led recovery in a very difficult economic times this measure seems highly counter productive.

I am writing to ask for your support by raising the matter with the appropriate departments in Government. I believe that we need a deferral of implementation until the impact on smaller businesses has been properly considered and appropriate changes made to protect our ability to trade freely in Europe, our ‘common’ market, without unnecessary burdens.

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Cash cows and commodity product.

Power, Insurance, Banking, High volume consumer goods, even groceries are all becoming increasingly commoditised, where the base product price is set at the minimum level throughout the market. Companies providing these products can’t differentiate in features and. Benefits because the base product is the one that meets the needs of the majority and cost is the central decision factor. Rapid information flows and the ability to compare means distribution, place, and timing have little or no impact on costs either. Intermediation tends to either disappear, or coalesce around niches and the top of the markets – the rest of us have to self serve.

The markets have sought to introduce things to find profits in other ways, now that the core product margins have been squeezed to drive the headline price down. Household insurance, for example, now comes with many add-ons (legal cover, home emergency, etc) and gimmicks, like auto renewal. Banking may come with monthly fees and rolled in benefits like insurances, and roadside assistance.

Then the games start, companies have a book of business on auto-renewal or monthly fees rely on inertia, and start raising the price of the product for some elements of the customer base. Our household cover has sneaked up in price over the last 3 years, whilst the cost of cover in the commodity market has been falling. Breaking inertia saved us nearly £300 this year.

Businesses won’t generally help you if their product has been commoditised. There’s no margin left for additional customer service, and when they create extra margin they tend to keep schtum about it.

If you are only prepared to pay for self service the it’s worth asking if you are serving yourself well enough.
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Start leading instead of doings people’s jobs for them

Well, I must admit I was quite tempted to use much stronger language in that headline….even a 4 letter word presented itself in my head – shock, horror.

However, as I believe strongly in passion in leadership, and not in ‘losing it’ I decided to keep it milder.  The point I’m aiming to make is no less strong for it.

I find it amazing/stunning/frustrating/frightening – depending on my experience of the state of leadership in companies I come across at the time – that in the 21st Century, 14 years in, there are still a lot of CEOs and C-Suite Executives heading companies of a not inconsiderable size, who believe that ‘leading is something that you do once you’re done doing your job’.

Ridiculous, I hear you say?  Surely no-one believes that anymore? Well, if they don’t believe it, they are sure doing an excellent job of living it.

So let’s have a little heart-to-heart and take a closer look at yourself, then…

What are you spending the majority of your time on?  How much of your time is spent in conversation/dialogue with your direct reports?  Their reports? The majority of your workforce on the ground?

What is the content of those conversations?  Tactical day-to-day? Short term strategic matters?  Long term growth strategy?  Developments in your market/industry/the economy?  The key financial drivers of your business?

When have you last discussed and planned strategic alignment of personal/team/department objectives with the long term growth plan?  Matching roles and present and future capabilities to delivery of that growth plan? What about personal development of your people to fill those roles successfully?

How much of your time do you think should be devoted to dealing with issues arising for your people?  Preparing for those issues arising?  Preventing them from arising?

How much of your time do you currently spend on these matters?  What’s stopping you from matching the time you said you SHOULD spend?  What are the consequences to your business of not addressing that gap…?

So, tell me again, what is your job as the leader of your business?

For more on this, go to http://haywoodmann.co.uk/services/leadership-development/

Nicole Bachmann is a multi-lingual, masterful coach and facilitator, who designs, tailors and runs highly effective leadership development programmes for teams and senior executives

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