You can tell by the title that this is going to be a riveting post! It is however one I have to write as I need to explain why some aspects of purchasing my patterns are very shortly changing.
I will continue to sell my knitting patterns to everyone who wants to buy them, regardless of their location, but from January 1st and for the foreseeable future I will no longer be selling my patterns as instant downloads on Etsy but will be emailing them all individually instead. This will mean a little bit of a delay following purchase but I will do my best to send the files within 12 hours of purchase and most of the time within an hour or two (this is because HMRC have said that emailed files are not subject to the new VAT laws - see below).
Purchasers in the UK, USA, Canada, Australia and anywhere else outside of Europe will continue to be able to buy instantly downloadable patterns from my website and Ravelry exactly as before but customers within Europe (not including the UK) will be diverted to buy from Etsy.
This is why...
On January 1st 2015 a new EU-devised law will come into force regarding VAT on all automatically electronically supplied services (telecoms, video streaming, e-books, apps, music, pdfs etc) full details are here. Previously VAT has been payable on the seller's location and there were some sensible thresholds in place to nurture the smallest of small businesses and encourage entrepreneurship and trade.
From January 1st the VAT will be payable on the buyer's location and there is no de-minimis threshold - in other words if you sell a single pdf file/music download etc. to anyone in a European country that you are not resident in (whether you as the seller are in Europe or anywhere in the rest of the world) you will be expected to charge VAT at the buyer's country rate and send that VAT to that country's authorities. You will need to become familiar with the 75 different tax rates across the 28 European member states.
Most European countries have introduced a mini one stop shop (MOSS) service within their revenue and tax departments (in the UK this comes under the remit of HMRC). The MOSS system allows businesses to sign up and submit a single quarterly return of all of their EU sales in one go, with HMRC then distributing the collected VAT to the correct country's tax authorities. This sounds like a good solution but for small businesses the admin burden is extraordinarily complex. Business are expected to collect and store 2 pieces of non-contradictory information on their customers location and if these contradict then they must collect a third, see this extract from HMRC own website:
Types of supplies covered by the presumption rule include where the digital service is supplied:
- through a telephone box, a telephone kiosk, a wi-fi hot spot, an internet café, a restaurant or a hotel lobby, VAT will be due in the member state where those places are actually located - so if a German tourist makes a call from a telephone box in France, VAT will be due in France
- on board transport travelling between different countries in the EU - VAT will be due in the member state of departure eg, if a ferry operator provides a wi-fi hotspot on board ship which is available to passengers for a fee, VAT will be due in the member state of departure and won’t depend on a passenger’s place of residence
How on earth a sole trader has access to this information is beyond me - I certainly don't have access to these details from paypal purchases.
There is also a requirement for the business to store these details for a minimum of 10 years in case of an audit and that this storage of this sensitive data should be on a secure server - requiring the business to register as a data storage collector.
The law was obviously intended to stop the tax evasion of companies who locate in a low tax rate country when in fact most of their business is done in a country with higher tax rate. It seems that in planning for the new law only those huge multi-national corporations were considered and that those involved with implementation were not even aware that there are 100,000s of individuals around the world selling their own self published literature, music downloads, knitting patterns, digital art etc directly from their own websites to customers in other countries.
So, you can see how daunting this new law is for little people like me who sell toy knitting patterns from their laptop on their dining room table and it seems insane that individuals are expected to comply in the same way as a multi-national company.
As a buyer it will mean that in general you will be paying more VAT than previously and that you will have a lot less choice in where you buy from - many designers have already stated that they will block sales to the EU or will no longer sell their patterns at all. You are also going to be more frequently asked for your phone number or other verifying data when you purchase anything digital on-line.
Most individuals and micro businesses only became aware of this new law in November 2014 and then only thanks to social media (despite the fact it had been agreed by the authorities in 2008) leaving us only a handful of business days to digest the complexities and sort out some kind of compliance.
As a result an EU action group has been formed with the aim of informing the authorities about a sector of the market they had previously failed to take into account, understand or even acknowledge. If this new law affects you either as a seller or a buyer please go and read what they have to say and consider signing one of the petitions calling for thresholds to be put in place to protect the smallest business from having to close under the weight of admin.
Thanks x
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Other resources:
Ravelry and discussion about EU VAT
