By Jen Farrant
For small & microbusineses there is key change in EU VAT laws that comes into play as of January. You might be thinking, as I originally was, that “I am a sole trader/small business, I am nowhere near the Â£80K limit”. That state of play has changed quite dramatically. First of all I would like to point out that I am not an accountant, that I don’t have any specialist knowledge in this – which is kind of my point actually, I’ve had to look into this and it is only really through Twitter and small business groups on social media that I have found out about it. I am a sole trader and I could do without having to delve into the depths of EU VAT laws.
If you have any digital products being sold to consumers- ebooks, pdfs, ecourses, membership access to your site etc., if they are sold within the EU means you have to pay VAT on all your services – either in each EU country, or through the governments VAT MOSS (VAT mini one stop shop) option, where you pay for all EU sales, submitting a quarterly tax return. Â The government’s definition of digital is:
• “broadcasting – the supply of television or radio programmes
• telecommunications – fixed and mobile telephony, fax and connection to the internet
• e-services – video on demand, downloaded applications (or ‘apps’), music downloads, gaming, e-books, anti-virus software and online auctions
This is a fast-changing area. These are examples rather a complete list of digital services."
That is a very broad definition, which looks like it will keep growing.
You can find the governments guidance on all of this here https://www.gov.uk/register-and-use-the-vat-mini-one-stop-shop and a simplified version here https://www.gov.uk/vat-on-digital-services-in-the-eu They have also answered questions hereÂ https://www.gov.uk/government/publications/vat-information-sheet-0814-vat-place-of-supply-of-servicesmini-one-stop-shop/vat-information-sheet-0814-vat-place-of-supply-of-servicesmini-one-stop-shopÂ but it does seem a bit contradictory in places.
So do your services count? If you answer yes to any of theseÂ questions (or something similar), then yes, your business will be effected:Â
• Sell PDF knitting/craft patternsÂ
• PDF templates
• Your digital photos/art Â via the internet
• PDF guides to… books about…. etc
• digital magazines
• Course where emails are sent out automatically
Now, I can understand the logic behind this – it is to stop Amazon et al getting away with not paying tax in each country and I don’t think any of us would argue with that – however the implications for small business are huge. There are a lot of small and micro business in the UK who are going to be affected by this. There are a lot of solopreneurs who make their income through digital products, it is an excellent way of diversifying your income stream, especially if you have health issues, are a carer, stay at home mum, don’t want to work the normal 9-5 etc.Â
I personally buy a lot of products and courses like this and I am not just talking about via big names. In the last few months I have bought the following directly from the artist/maker: course on developing my blogging writing in a more authentic voice; online sketchbook school/art courses; ebooks and mp3s of Christmas songs for the ukulele; 2 digital magazines, and a couple of others that I can’t remember right now. A lot of people buy services like this – I like buying things directly from the artists so I feel like I am supporting them.Â
The government has assumed that most small business sell via a third party – Amazon, Etsy etc, however this is simply not true. Follow the hashtags #vatmoss and #vatmess for true life stories of how it is going to affect people. A lot of microbusinesses are shutting down trading as of January while they try to find a solution. There are, of course, third parties that you can sell through, but many people have built their websites to handle this themselves, as they want to retain that direct contact with their customers, not to mention those third parties will take a cut of the income.Â
I am currently developing 2 ebooks to launch for next year and I was thinking about a couple of ecourses that I could launch. This is important to me as I wanted to diversify my income streams. However, I can’t see a way to deliver this right now. I can easily sell my books via Amazon, but the ecourses? I have no idea right now.Â
So, why can’t I just register for VAT MOSS and work that way? Well there are several reasons:Â
• firstly I doubt my e-sales are going to be huge volume or income. Do I really want to do a VAT return each quarter because I sold one book in Belgium?Â
• Secondly I am a sole trader, I pay my rather wonderful accountant to do my tax returns for me each year, but I couldn’t afford to do that each quarter – oh and dealing with all the assorted paperwork (keeping records for 10 years)!Â
• I can’t just sell in the UK and exclude the rest of the EU as the government will want proof of where my customers are and if one person mis-selects their country, that could be a whole world of hurt, also many use PayPal for payments and one of the points of PayPal is protecting the consumer’s data, including their country.Â
• Lastly if I register for VAT for digital products I am going to have to charge VAT on all of my services. I provide strategic & creative consultancy to businesses -Â primarilyÂ a lot of small arts organisations. If I have to add VAT onto my fees, they would not be able to claim it back, so my fees will have taken a 20% hike for them, which is a big increase and just not affordable.
What are the answers? Well first of all please sign the petition hereÂ https://www.change.org/p/vince-cable-mp-uphold-the-vat-exemption-threshold-for-businesses-supplying-digital-productsÂ Asking Vince Cable to extend the VAT exemption toÂ digitalÂ products too – so if you are trading under Â£80K it is not a problem.Â
Secondly speak to your accountant as to how it will affect you, read up on it and essentially keep your fingers crossed that there is a happy solution, otherwise as of 1 January 2015 you will be liable for VAT on digital products.Â
Jen Farrant is a strategic & creative consultant and a writer.
Twitter @jenfarrant www.jenfarrant.com