Will your micro business be a digital mess in 2015?

VAT MESS regarding selling digital products online in the EU
If you sell digital products, and you haven’t heard about #VATMOSS (or #VATMESS as some are calling it), then you are either so incredibly busy you haven’t had time to come up for air, or you’ve been holidaying somewhere in deepest, darkest Africa.

If the answer is that you haven’t, it’s definitely time you caught up!

Here’s a post that will genuinely help you. Let’s establish some facts.

Do you sell digital products?

A digital or e-product can be an e-book, e-course, pdf download, recorded video, podcast, blog theme, blog plugin, software and music.

Some of these can be also classed as an e-service, such as the e-course which is administered via an auto responder, or a pdf which is downloadable from a website link.

These can be sold from your blog, website or membership website, and also can be sold via a third party platform, such as Amazon, Etsy or Udemy.

Are you registered for VAT?

It’s highly likely that you aren’t. We all know about the VAT threshold of £81,000 which is the cut-off point for having to register for VAT in the UK.

But did you know that from 1 January 2015 you will have to pay VAT on digital products if you sell them to people who live in the EU? Oh, and it’s EU VAT, not UK VAT. And you will have to do the VAT return in the country of the purchaser within 20 days of the transaction going through.

This means if, in the New Year, someone in France buys your e-book, you will have to charge them French VAT, get registered for French VAT and file a VAT return in France for that product within 20 days.

Oh, and you have to keep a record of that transaction, including three pieces of evidence to prove the purchaser does live in that country, safely and securely for 10 years.

But I don’t sell stuff abroad

I’m afraid it’s not as easy as that. We all know the Internet has no boundaries, and that anyone from any country can see your digital products and may want to buy them. How will you be able to block your website off from people from the EU?

Also, have you got suitable software that could differentiate between people in the EU and those from elsewhere?

And does your payment system calculate which VAT from which EU state is applicable and add it in before the payment click is made, as well as the facilities to capture the three pieces of evidence to keep the VAT man happy?

But I don’t earn enough to be VAT registered

I’m afraid this doesn’t apply for any purchases made in the EU. However, there is some help available from HMRC regarding this. It’s called MOSS (Mini One Stop Shop) and it is supposed to sort out your EU VAT for you.

But there is a catch. At the time of writing, to apply for MOSS you also have to register for UK VAT. And also the £81,000 threshold does not apply here. So regardless of your income, you’ll still have to submit quarterly VAT returns to HMRC.

The alternative is to undergo registering for VAT in each of the 28 EU states that apply whenever you do a transaction there. Let’s hope you have a fantastic accountant.

There must be ways around this!

Well, yes, there are. As well as hand picking your customers to make sure they are based only in the UK, you could:

Withdraw your digital products from sale. This is exactly what I’m doing until a better solution has been sorted out. This will inevitably result in a hideously reduced income, but I don’t want to get clobbered by an EU Tax man.

Adapt your digital products to include more human intervention. What does this mean? Basically human intervention is the opposite to automation, eg you physically clicking a button to send something in a personalised email rather than an auto responder doing that process for you.

Have a human presence. Therefore all e-courses need to have a forum or social media group associated with it for proper social interaction with your customers, which needs to be shown to be regularly attended and used.

Here’s a chart provided by HMRC as guidance:

HMRC's guidance on digital product delivery criteria

Thanks to Alan Rae who shared this on the Digital VAT 2015 Facebook Group (see details below).  

Go live! A live webinar or Google Hangout involves human ‘personal input’, and selling tickets for this event is exempt from EU VAT. You could get round this by sending your participants your e-course as a ‘free’ bonus afterwards.

Offer personal coaching. This isn’t seen as an e-service, even though it could be done via Skype or Hangout. Also it’s live, and therefore includes ‘personal input’. Again you could send the e-course as a bonus or additional resource, as long as it’s termed as ‘free’.

Adapt your e-course into a physical product. At the moment physical products aren’t affected by VAT, so adapt your e-course into a course on printed paper! You could also send your files on a USB stick that prevents them being downloaded onto a computer, or an alternative is a CD, and send it in the post!

Create a membership site. Be careful about this one. The e-course lessons should only be available via your membership site, and not be able to be downloadable onto a computer. Also the customer pays for membership only, and not the e-course. There are still many grey areas around this.

Use a third party platform. This is because you are dealing with the platform as B2B (business to business). Selling digital products is usually seen as B2C (business to customer/consumer), which has to incur VAT in the EU. This means the platform has to deal with the VAT, but they usually take a big cut to compensate for this.

Charge higher prices to EU customers: As well as discriminating against them, how are you going to be able to make sure the customer clicks on the correct price bracket? Or be truthful about where they live? That’s why you need to have three pieces of evidence.

Be careful of your payment system. Paypal is not the answer, as it cannot provide all the necessary evidence required for the EU VAT man. There are others available: ClickBank, FastSpring, Taxamo, SendOwl, Zaxaa, etc, but they may be more complicated and expensive to use. Do some focused research on this.

What’s being done about this?

Plenty. There is a very lively Facebook Group that is constantly updated with new information, as well as sympathetic and focused chat. Check out out via https://www.facebook.com/groups/DigitalVAT2015

You could write to your MP and MEP – in fact why not all of them? Also the local and national press. Finally BBC 4 have got wind of this and will be doing a You and Yours programme.

You could sign the petition: https://www.change.org/p/vince-cable-mp-uphold-the-vat-exemption-threshold-for-businesses-supplying-digital-products

You could blog about it like I’ve done, and tell all your friends to sign the petition and write letters to the government officials and newspapers.

You could read these posts:

http://onemanbandaccounting.co.uk/eu-vat-changes-2015 – Rosie, who is absolutely brilliant, is one of the fabulous group of people who have been bombarding the government about this, with exciting results!

http://carlalouise.com/the-vatmoss-mess-my-response-to-vince-cable/ – many of you will be able to relate to Carla’s letter.

https://www.enterprisenation.com/blog/posts/why-vatmoss-needs-you – some more explanations.

http://thebrandalchemist.com/mindset/maybe-controversial-view-moss-decisions-im-making/ – another personal yet positive point of view.

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 – the latest guidance from HMRC.

The best thing is not to panic

And I mean that! There isn’t enough time to get all of this sorted before 1 January, so take a deep breath and take down your e-courses and digital products for the time being.

Read up all that you can. Find out what solutions are best for you. Work out a plan of action. Adapt what you’ve got to fit in around these legislations. Be resourceful. We are all going to get through this!

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About Alice Elliott

If you are a beginner blogger who is looking for someone to "explain things really simply" about blogs and WordPress, then go ask Alice Elliott! Her award winning blog Fairy Blog Mother explains blogging using ordinary, everyday words. Why not take part in her 90 Days Challenge to Commenting Mastery to get more readers and traffic!

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14 Responses to Will your micro business be a digital mess in 2015?

  1. Karen Bleakley 12 December 2014 at 07:07 #

    Wow that sounds like a nightmare! I’ve recently moved from the UK to Australia and am in the process of finishing an e-book I’ve been working on. Will this rule change affect me selling books to people in the EU too or does it only cover businesses based in the UK? Thanks a lot. It’s a great post with some really useful information and advice.

    • Alice Elliott 12 December 2014 at 11:25 #

      I’m sorry Karen, but any country that trades with the EU is affected. It’s going to be a big shock to them when they find out, if they didn’t know already! Being on the other side of the world doesn’t make you exempt from EU VAT legislation.

      I don’t know anything about the Australian VAT rules, and whether you have an equivalent to MOSS, so it would be very wise to see how this affects you before you continue trading in the New Year.

      • Karen Bleakley 12 December 2014 at 12:12 #

        Thanks for your reply. I’ll look into it some more. I know I’ve been really busy moving to the other side of the world for the last few months, but I can’t believe I hadn’t heard about this already. This is going to impact on so many businesses. x

        • Alice Elliott 12 December 2014 at 12:17 #

          I know. Some people estimate it might be as many as 3 million, not the 34,000 the HMRC had envisaged.

  2. Alice Elliott 12 December 2014 at 11:49 #

    There is a fabulous website set up by those people who are campaigning on your behalf:

    http://euvataction.org/

    I advise you go to and check it out!

  3. Elizabeth 23 December 2014 at 09:55 #

    So how does this affect bloggers who don’t sell anything, exactly, but do create content for clients? For example, if I am sent a hamper of food from Spain to try out and review, HMRC considers the value of this hamper income in lieu of payment and a review post is considered advertising, so do I have to then pay Spain VAT on the value of the hamper even though no money has exchanged hands?

    • Alice Elliott 24 December 2014 at 12:03 #

      Thank you Elizabeth for your comment. I’m not an accountant, but in my mind if no money has exchanged hands, you can’t charge VAT on it. But it would be very wise to consult your accountant to find out the correct facts, especially how the different EU countries will view it, as that is how we need to consider it from 1 January onwards.

      • Elizabeth 24 December 2014 at 17:06 #

        The thing is, I, like many smaller income self-employed bloggers, can’t afford to hire an accountant. HMRC says different things each time you phone them with regard to whether product samples, if you keep them, are considering income (some say yes, some say no) and whether I need to declare their value and pay tax on it. It’s all just so complicated. I think, to keep matters safe, I will have to stop accepting product samples from outwith the UK!

        • Alice Elliott 29 December 2014 at 11:22 #

          That might be a good idea, Elizabeth, until we have some more concrete information that will clear up this confusion. The EU will be hit hard from many sides, as a lot of very small businesses will be refusing to trade with these countries, due to the misunderstanding, complication and added expense this furore has caused.

  4. Jill Wigmore-Welsh 27 December 2014 at 13:53 #

    Calm down people. If, like me, you haven’t been selling into the EU and have your own material then please read my blog about copyright, trade marks and patents. I thought I HAD to sell to other countries but I was misinformed

    Copyright laws are country by country. Effectively any small author of their own material should check with each country to ensure they make correct arrangements. Of course its impossible to do this. Which is why people geoblock countries they dont’ want to sell to.

    Its quite commonplace for this to take place and the EU has been having a consultation on it. I’ve put up the links as well.
    So effectively for all material you haven’t sold in other EU countries before you can use this copyright loophole. If you dont believe me read the documents.
    If you are selling stuff you have sold before then you will either need to do the VAT or withdraw, rewrite, rebrand republish.
    So dont panic!!!!!!!
    https://www.linkedin.com/pulse/more-panic-common-copyright-jill-wigmore-welsh-msc-hcpc-mcsp-cmsuk

  5. Peter Cook (@AcademyOfRock) 30 December 2014 at 10:59 #

    This is a disgrace. Instead of asking Amazon et al for the billions back, they go after pennies. This will not fill the Government coffers and just spoils enterprise in the UK.

    I sell the odd book internationally and I will switch to a barter system to get round the problem. If HMRC don’t want to encourage enterprise, I’m not going to tie myself up in red tape to pay their wages. Pure scum.

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