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:
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!