My Etsy shop now has Instant Downloads!

When I last wrote about EU VAT, in January I was still waiting to see exactly what Etsy would be doing before I made any changes to the digital items listed in my shop.  In February, Etsy posted this update on their blog, stating that they would be responsible for collecting and remitting VAT on Instant Downloads for all sellers.  The new system for collecting VAT from buyers is still not up and running as I write this, but Etsy have said that they will be paying VAT due on sales until their new collection process has been set up.  Therefore, I have decided to go ahead with making the changes to my shop!

Since 1st January, I limited the number of countries which my non-customised printables (including scrapbooking paper sets) were sold to, so that I could exclude sales to EU countries (except UK).  I am in the process of changing these listings to Instant Download which has several benefits;

• Etsy will handle the VAT, so I don't have to
• The digital items will be available to buy from all European countries again (yay!)
• The download will be instantly available; no more delays in me sending emails caused by global time differences.  So, hopefully, more happy customers!  As soon as payment has been confirmed, customers will be sent an automatic email with a link to download the files from Etsy.

Although it is quite a time consuming process for me uploading all the files to Etsy now, it should save me time in the long run.  I'm still working my way through my listings, but aim to have all non-customised digital items available for instant download soon.  That will include; scrapbooking papers, collage sheets, digital stamp sets, labels, tent cards, name place cards, bunting and straw flags.  All items with customisable options will remain as they are; I will continue to send emails with a download link for these.

If you are unfamiliar with how Etsy’s Instant Downloads work, you can see this article from their help section here: https://www.etsy.com/uk/help/article/3949?ref=help_search_result

An Update On The New EU VAT Rules

Back in November I wrote about the EU VAT rules that were going to change on 1^st January. Well, the new rules are now in force but campaigning for changes to be made to the rules still continues, so I thought I would give you an update and write about how they are affecting my business.

Over the last couple of months, as a result of the campaigning, HMRC came to understand the problems the new rules are causing businesses. They have made some concessions on the information businesses need to collect to comply with the rules (until June). However, there are still a lot of issues which I won’t go into here, but they are explained much better on the EU VAT Action’s website: http://euvataction.org/updates/

I emailed HMRC, asking them to clarify exactly which of my products would fall under the new rules. My customised printables (invitations etc) do not fall under the new rules so I can continue to sell these exactly as I have done. However, my non-customised printables (scrapbooking papers etc.) do fall under the new rules because when someone purchases them I send an email to my customer with a link for them to download the files. If I sent them as attachments in an email they would not fall under the new rules, but the files are too large and my internet connection is too slow to do that. It’s complicated isn’t it!? You can see HMRC’s explanation of what does and doesn’t fall under the new rules here: HMRC’s Guidance on VAT

Another problem is it is still unclear how Etsy (where I sell my printables) is dealing with the new rules and whether they should be responsible for handling VAT. On instant downloads they allow the customer to download their purchase and, if the customer pays by direct checkout, Etsy handles the payment too. I have read in the Etsy forums that other sellers have been told by HMRC that Etsy is responsible. However, after weeks of not responding to sellers, Etsy wrote a blog post just before Christmas saying that they would not be handling VAT but they are working on a tool to allow sellers to deal with the VAT themselves. They said that they would release more details in early 2015. We are still waiting...

Interestingly, Folksy has been more helpful with informing sellers how they are affected and posted another update on their blog which you can read here.  Although I have a Folksy shop, I do not currently sell my printables there, but it is good to know they are communicating with their sellers.

While I wait to see what Etsy will be doing, my temporary solution has been to limit the countries which I sell my non-customised printables to. I altered my listings so that they now ‘ship’ to the UK, USA, Canada, Australia and New Zealand. To keep things simple and save time with altering my listings I just included these 5 countries, as they are the main countries I sell to.  This is not ideal though so I am still looking into a better solution.

I will keep you updated if and when there are any changes.  I hope that more progress will be made soon, especially as it seems they are planning to extend the rules to all products as early as 2016.

If your business has been affected you can fill in a survey on the EU VAT Action group’s website http://euvataction.org/take-action-now/complete-the-survey/

You can sign the EU petition here too http://euvataction.org/take-action-now/sign-the-petition/

UPDATE 21st January 2015
Etsy posted an update on their blog last night - they have said they will be handling VAT on behalf of EU sellers for instant downloads!  Unfortunately there are no updates for non-EU sellers.  I still don't know exactly how this will work so won't be changing anything in my shop yet but hopefully it won't be long before there is more news.

Have you heard about the new EU VAT rules for digital products?

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

Useful Links

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.

There are a couple of threads on Etsy too: here and here

I have written a new blog post An Update On the New EU VAT Rules, since the rules came into force on 1st January.