There are new VAT regulations coming into force in January that are going to have a big impact on small businesses who sell digital products to customers in the EU. I only heard about this just over a week ago, but have noticed in the last few days word has been spreading and today #VATMOSS has been trending on twitter.
I have been reading as much as I can about the new rules to try and make sense of the changes.
It’s complicated, but from what I have read, this is basically what I think the changes mean:
- From 1st January 2015 VAT on digital goods will be payable to the country the buyer lives in, not where the business is based.
- Digital products include eBooks, music downloads, apps, guides… as well as things like digital craft papers and party printables (which I design and sell) and pdf patterns. So this is going to affect a lot of small businesses on places like Etsy.
- If you sell a digital product to someone in the EU you will have to register for VAT in that country. This applies not only to sellers from EU countries, but to anyone who sells to the EU – so US based sellers will be affected too.
- VAT thresholds (the amount of money your businesses makes before having to register for VAT) only apply to the country you are living in. So you would have to register for VAT as soon as you make a single sale to another EU country.
- Rather than register separately for every single EU country you sell to, you can sign up once to VAT MOSS (Mini One Stop Shop), but to do this in the UK you would have to register for VAT. Which in turn would mean you would have to apply VAT to every single product / service you sell and submit VAT returns quarterly.
- Physical items are not included in the new rules, so the normal Distance Selling rules would still apply. If you only sell physical items you would only have to register for VAT in the UK if your turnover was more than £81,000.
- If you are in the UK you can continue to sell digital products to customers in the UK without being affected (normal VAT thresholds would apply). You can sell to any non-EU country and not be affected.
- Selling through another company who handles the invoices, not you, would mean you wouldn't need to register for VAT - eg: selling an eBook through Amazon, or craft designs through Crafts U Print.
My conclusions on how this will affect my own business – registering for VAT would mean a lot of extra admin for me and it is not something I want to deal with at the moment. I have read that some people might stop selling their digital items altogether. This isn't something I will be doing, but it looks like I am going to have to stop selling my digital products to customers in EU countries (but I will continue selling my digital products to UK customers and non-EU customers). After January 1st, if anyone from an EU country wants to buy my digital items I would either have to send them a printed copy or send a CD with the files on in the post – which unfortunately will cost my customers more and not be as quick as getting a download by email. Fortunately I will be able to continue selling things like my postcards, cards, envelopes, baker’s twine etc as normal.
If you are from an EU country (not the UK) and are thinking of buying any of my craft or party printables I recommend you do so before 31st December 2014. If I find any other ways around the new rules I will post updates on my blog.
There is an online petition you can sign, to encourage Vince Cable to intervene here: https://www.change.org/p/vince-cable-mp-uphold-the-vat-exemption-threshold-for-businesses-supplying-digital-products
I’ve tried to summarise the information I have read, to the best of my understanding, but I am not an expert so if you think this affects you too, here are some links for more information:
Guidance from HMRC – VAT: supplying digital services and the VAT Mini One Stop Shop
HMRC will be holding a twitter clinic on Thursday 27th at 3:30 - 5pm.