Currently, if you buy something in the EU, VAT is charged at the rate applicable in the seller's country (I don't currently charge VAT as my turnover is well below the UK's threshold for VAT registration).
From January 1st 2015, VAT on the sale of digital products and services will be charged based on where the buyer is located. So if you're in the UK and you buy an e-book or subscribe to an online magazine or download a piece of software, you'll be charged VAT at the UK rate no matter where in the world the company you're buying from is based.
This sounds like a simple change, but it's actually very, very complicated! There will also be no sales threshold, so even if you just have one digital product in your shop and make one sale within the EU that sale falls under these new rules. You can find much more info about this legislation and what these changes mean for small businesses here, here, here and here.
I don't have many PDF patterns in my shop at the moment but my business plan for 2015 had been "list lots of new patterns!!" I already have a bunch of them in progress, and have many more designs (old and new) in a notebook waiting to get stitched and photographed and written up.
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| One of my PDF patterns |
Thanks to the new rules, I have to choose between...
A) stopping selling digital products (my PDF patterns)
B) registering for and charging VAT, upgrading / changing my shops to meet the requirements of the new legislation and doing all the complicated data-gathering and admin that goes along with that to make sure I'm complying with the law
or C) selling through a VAT-compliant reseller, i.e. a venue where they will be making the sale for me (and dealing with all the VAT stuff), taking a commission then paying me what's left.
I am choosing option C!
So, I'm going to remove my PDF patterns from my shops on December 22nd (when I'll be closing my shops for the holiday break). Then as soon as I find somewhere to sell through I will let you guys know!
I have my fingers tightly crossed that I can find a solution asap - and also that the designers I love will find solutions that work for them so I can keep buying their lovely patterns :)
In the meantime, you can buy my PDF patterns (along with lots of handmade bargains in my sample sale) from my Big Cartel shop or my Etsy shop. UPDATE: You can get 25% off patterns purchased from my Big Cartel shop with the discount code PAUSE
The new regulations also cover blog ads (the EU's explanatory notes for this new legislation includes "the provision of advertising space including banner ads on a website/web page" in their list of examples of things that fall under the new rules). I may be able to continue to sell some ads but for the moment I'm not accepting any new blog ads or renewals. All my current ads will be unaffected and will run until they expire. Many thanks to everyone who has bought an ad over the past couple of years! xxx
P.S. I am not an accountant! This post is not intended as advice, it's just to let my readers know why I'm making these changes. If you think the new VAT rules may affect you and your business, please do your own research, contact your local tax office, etc.
9 comments:
I was devastated when this news came through last month as I too don't have many digital patterns but my plan for next year was to do many many more! I'm lucky with that, writing crochet and knitting patterns, I will be able to sell my designs through Loveknitting.com and they will handle the VAT! I really hope you can find a solution too and soon, its a frustrating time to get designing but we mustn't give up! :) jenny xx
What a mess! I had heard of the changes but read they were nothing to be worried about!! Well, I don't have any pdfs for sale, however everything I've been doing has been in prep for such a thing. No idea what to do now. I have a migraine so can't really get my head around all the info in those links properly, except to see how awful it all is. This is going to be ruinous for people and put prices up? There is always snail-mail I suppose, where the seller prints out and sells a hard copy. But the joy of pdfs is their instant access.
Here are a couple of links to discussions on etsy about the vat on pdfs. https://www.etsy.com/uk/teams/7722/discussions/discuss/15651570/page/1
https://www.etsy.com/uk/teams/7332/etsys-uk-ireland-seller-support-team/discuss/15479309/page/1
Thank you for the interesting blogpost. I shared it with my Thessaloniki Etsy Greek Street team on facebook to let them know and maybe learn more about it.AriadnefromGreece!
It would seem that if you went back to the old way of sending pdf files, i.e. emailing them manually with attachments then that does not count as an e service. I don't think people would mind about that - I certainly wouldn't. Here are the relevant bits of info which I got to via a link from etsy forum
"An e-service is one that is fully automated and involves no or minimal human intervention. #VATMOSS
What is meant by “no human intervention”?
This is where the sale of the digital content is entirely automatic – for example a customer clicks the “Buy Now” button on website and
• the content downloads onto the customer’s device, or
• customer receives automated e-mail containing content.
In both cases these would constitute an e-service.
What is “minimal human intervention”?
This is where the sale of the digital content is mostly automatic but the small amount of manual process involved does not change the nature of the supply from an e-service - for example a customer clicks “Buy Now” button on website and
• vendor receives notification and clicks a button, which produces an email pre-populated with the customer’s details and containing content which is sent to the customer; or
• vendor receives notification and clicks a button which produces an e mail pre-populated with the customer’s details. Vendor attaches content and sends customer e-mail by clicking “Send”
In both cases these would constitute an e-service
When does the “human intervention” exceed “minimal”
This is where the amount of manual process involved in the sale means that the service ceases to be an e-service. In these cases the website functions as a “shop window” for the sale rather than also providing the mechanism by which the sale is made – for example
• a customer clicks “Buy Now” button on website and is added to a list. At end of day the vendor takes list, manually completes an e-mail with each customer’s details, attaches the relevant content and hits “Send”; or
• a customer emails vendor with details of the products they wish to purchase. Vendor manually replies to email and attaches the content.
And here is where I got it from.
http://www.mynewsdesk.com/uk/hm-revenue-customs-hmrc/blog_posts/eu-vat-changes-twitter-q-a-31555
The stuff I copied and pasted is at the bottom. The whole page is very helpful (if daunting).
Good luck whatever you decide. This whole fiasco is going to be devastating to some people.
Jenny - It is so wonderful seeing Ravelry & Love Knitting team up to provide a solution for knit & crochet designers! These changes have come as a surprise for many people, so hopefully over the coming months more solutions will be popping up :)
Anon - thanks for the links, I am following along with all the news from HMRC etc about this. They've just published some further guidance here:
https://www.gov.uk/government/publications/revenue-and-customs-brief-46-2014-vat-rule-change-and-the-vat-mini-one-stop-shop-additional-guidance/revenue-and-customs-brief-46-2014-vat-rule-change-and-the-vat-mini-one-stop-shop-additional-guidance
HMRC had given conflicting answers re: the "PDF file attached to an email" issue in the past few weeks, but seem to have decided that PDFs emailed "manually" definitely don't count.
This is good news but sending all those emails is a lot of work! And the majority of my PDF sales come via Etsy, whose instant downloads would fall under the new rules.
Lots to think about in the coming weeks!
Hi,
I would be very interested in any information yo find about a third party through which I can seel my pattern ideas as I have 5 sitting in my hard drive which I was going to launch in the New Year!
Typical. There does not seem to be opportunities for free enterprise anymore.
what timing in an economic climate where everyone is struggling not very forward thinking at all.
This is going to affect buyers too. Sellers on etsy are asking for a way of not having 'unwanted' EU buyers purchasing their downloads! So if there are patterns we want now is the time to get them. That seems an unfortunate by-product of the legislation - overnight we get cut off from the rest of the world! If we tried to block buyers from the rest of the EU buying here, it could apparently be seen as discriminatory.
HMRC just doesn't seem to realise that shopping carts just can't process all the information they require. What a headache for people who sell on their own sites. I guess HMTC will see small business as being expendable when off-set by the amount of VAT they hope to collect by the bigger businesses.
People are talking about putting patterns out on CD's or printing off copies. That has to be a backward step, but some people will feel they have no alternative.
There are so many who don't know about it either. HMRC are known for coming down hard on people. PDF's are so necessary for a lot of enterprising ideas. I hope a satisfactory resolution is found by people.
Indigo Blue - if/when I find a solution that works for me I will definitely be sharing it! :)
Anon - yes, I think a lot of non-EU sellers are just going to stop selling to people in the EU! I totally understand why they're choosing that option but as a buyer it makes me very sad :( I will definitely be buying some patterns over the next couple of weeks in case I can no longer purchase them come the New Year!
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