I enjoy writing patterns. I have several waiting to published, some of which I am planning to offer as paid patterns. I have no way of knowing whether I will end up selling no patterns, a few patterns or, in the words of Del Boy ‘this time next year we’ll be millionaires…’! My income as a fledgling self-employed designer, is (very, very, very) unlikely to edge over the threshold for income tax in the UK (about £9,500). A typical pattern price would be £3 – £4 so that represents sales of 2,400 pattern sales in a year!
Just as I was about to publish my first paid pattern VATMoss/EUVAT raised its ugly head. The rules on dealing with VAT on sales to Europe are changing and it seems that the smallest businesses have been totally disregarded and are about to be hit hardest – and everyone has to start small at some point!
The VAT changes will mean that giant firms, such as Amazon, will no longer be able to take advantage of being based in low-VAT EU countries in order to sell their digital products at cheaper prices (the VAT at present is charged at the rate of the country of the supplier). From 1 January 2015 the VAT has to be charged at the appropriate rate for the country where the person purchasing the digital item is based. This in itself doesn’t seem too unreasonable – but tiny businesses are being treated in exactly the same way as the giants.
If I were offering to print and post my patterns to you and I could guarantee that people from elsewhere in the EU wouldn’t buy my patterns, the legislation wouldn’t apply at all and I could go on my merry way earning up to £81,000 before having to worry about registering for VAT in the UK. Thresholds like this are meant to encourage small businesses, enabling them to concentrate on ‘doing business’ not ‘spending all their time on admin’.
There is debate as to whether I could possibly avoid all this by sending you a personalised email with the pattern attached (yes, this is the 21st century…) But who wants to buy paper patterns or wait for an email in this digital age? We have all got used to the luxury of having an electronic version of a pattern within seconds of purchasing it and using websites such as Ravelry to keep them secure. We’re all meant to be going green and saving the world by not chopping down forests and using paper…
The legislation has existed since 2008 – which is a very long time in terms of digital sales development and thousands of business have come into existence because of the advent of online publishing, payment processors and shop-window websites charging minimal fees. Often these businesses are run by people who cannot work in traditional jobs due to the commitments of caring for family or health issues. Sadly, HMRC (Her Majesty’s Revenue and Customs, the tax department in the UK) do not seem to have communicated at all with the smallest businesses. They do (or did, we are quite a noisy bunch when we put our mind to it!) not know we existed, had no idea how we operate and in return we have been left unaware of their expectations about paying VAT.
It’s not just the VAT. If I sell directly I need to keep records to prove where my customers live (in two different ways) so I can hand over the VAT to the appropriate government (the fact that this data is not actually available to small scale sellers seems to have bypassed HMRC). If I keep this sort of data (for ten years as required) then I may need to register with the relevant data agencies – and they may wish to audit me at some point.
So I have a few choices:
- Do nothing and wait for the VAT inspectors from various parts of Europe to spot me with their web-bots and imprison me for non-payment of a couple of euros worth of VAT (that’s worth everyone’s time and money, isn’t it)?
- Become VAT registered, join MOSS and wait for the few EU sales I am likely to make to roll in, then savour the delights of completing returns on a largely untested system (yes, tested by four people, who were already conversant with VAT returns…)
- Stop people in the rest of Europe buying my patterns (possibly leading to discrimination police on my doorstep)
- Make my patterns available via a third party platform who will handle all the admin/VAT on my behalf. This appears to be what HMRC assumed everyone does. However, many of the platforms do not work in the way that HMRC anticipated and do not see themselves as being the ones who should have this extra workload given to them. Ravelry and LoveKnitting have come up with a workable solution, but there is still no confirmation that HMRC believe that Ravelry are not responsible as a platform. Also, selling via a platform means that they will want an (entirely reasonable) fee from me, but that eats into any income I might gain from sales.
It does make you think ‘is it all worth it?’ – but that’s the easy way out!
These changes will affect anyone who buys/sells digital products – patterns, instructional videos, illustrations, web adverts – whether they are in the EU or elsewhere (yes, if someone in the USA sells a pattern to someone in Europe they should be remitting the VAT to the appropriate country too). If the VAT has to be paid the seller needs to factor it into their pricing, as well as the cost of their time in administering it. Prices are bound to increase and some businesses will just opt out of the madness altogether and cease trading.
Digital products are just the start, physical goods are next on the horizon, bringing this nonsense to a whole new range of nano-businesses and their customers. So much for encouraging small businesses and as for the current campaign to #DoMoreOnline…!
Today there is a TwitterStorm using the hashtag EUVAT. Previous Twitterstorms have raised awareness and brought about some communication with HMRC, this one is aimed at the EU. If you want to know more I’d suggest looking at EU VAT Action and in particular completing their survey or signing this petition.