I'm not a wordy person, I'm not a number loving financial person, I'm not even a campaigner, I'm a quiet, work behind the scenes designer who loves to design and craft, so what on earth could have driven me to get on my soapbox and write a blog post about forthcoming VAT (Value Added Tax) changes and the impact this is having on independent craft artists, designers and crafters.
Yikes, crafty digitals are disappearing!
Awareness of the new VAT laws on digital goods and services coming into force on January 1st 2015 is becoming more widely spread within the crafts and hobbies community. Already some UK sellers are having to tell their customers they will not be able to sell their wares to non UK EU customers. Likewise some US and rest of the world sellers are saying they will not sell to EU customers which of course includes us here on UK soil. How sad is this that our instant access to craft resources is beginning to dwindle and that talented creators are left feeling so frustrated that they cease making their digital products globally available?
Hurting the smallest the hardest!
You may have already heard through the media or even directly from one of the huge multinationals such as Amazon, Google or Skype that you will soon be charged more for the same supply of services that you've been receiving for years. You may also be clapping your hands and thinking, fair dues, these big boys have been evading taxes for years, this is a small price to pay in order to level the playing field. But, did you know that as the tax laws behind these increases were processed through parliamentary approvals and the UK media coverage ran with tax avoidance headlines, that deep within the 92 page EU explanatory notes behind the changes there lurked a tradegy in the making for micro, even nano sized, sellers and small businesses? If you live in the UK and sell just one automatically delivered digital download from your very own blog (or other independant platform) to a customer in the EU outside of the UK, then unfortunately this affects you.
Get VAT registered or get out!
From January 1st suppliers of digital goods and services will be required by law to collect VAT at the rate applicable to where the customer lives and then forward this tax money to the relevant EU country. (We are currently charged VAT at the rate for where the supplier is based.) It matters not whether you are currently VAT registered, if you sell automated instant delivery digitals you will soon be legally required to start collecting VAT if you make just one cross border EU sale. HMRC confirmed today that digital content manually emailed to the customer after purchase is excluded. Scroll to the bottom of this HMRC article to check if this applies to your set up.
There are then two options available for forwarding collected taxes, one is to become VAT registered with each country to whom you need to make payments and the other is to register in the EU country where you live/trade and make a single payment through the MOSS (Mini One Stop Shop). MOSS is the quick and easy, simple solution however it has a sting in it's tail ... in order to use MOSS you'll first need to be VAT registered which then means you have to apply VAT to everything you sell! This 'MOSS TRAP' and it's compliance terms is forcing thousands of sellers to think very, very carefully if or even how they might be able to continue trading legally after the New Year bells.
How we found out!
It was back in June and as a VAT registered business that we first became aware of this shocking clamp down on digital sellers (Artists, Designers, Writers, Musicians, Developers ...) who sold directly from their own blogs, websites and possibly other platforms such as Etsy. Was this spelt out clearly to us by HMRC? Oh no! Very, very much no! It was only after careful reading of the explantory notes that a horrible red warning light began to flicker. A quick Google search led us to this forum post on Accountancy Web by Paul Soper, this Linked In blog post by VAT Specialist Wayne Neale and this forum thread at KVR Audio by Angus. Well the warning light was shining brightly now and we quickly opened a B2B Facebook Discussion Group and invited other artists to join us so we could all discuss this further. Some artists did join us, many of the invited did not. Paul and Wayne so very, very kindly joined the group and slowly the little group grew, sharing information as best we could. I don't know what happened in digiland about 7-10 days ago but suddenly new members were tapping on the door in ever increasing numbers! Nigh on every member, a sole trader currently under the VAT threshold who had suddenly found themselves desperately fighting for survival and depressingly unable to afford expert financial advisors or worse still receive clear and concise answers from the HMRC. This unjust tax law which hurts the smallest the hardest has become for thousands a living nightmare! Oh to laugh or cry!!!
Watch out indie and small craft shop owners and traders the HMRC have already said that 'very soon' the same EU VAT law with no thresholds will be applied to the sales of physical goods! We will then see MOSS change into OSS.
I'd just like to reassure our customers that as Cuddly Buddly are already VAT registered these tax changes will make no changes to the way you already purchase and receive our digital stamps, papers, etc. We have however embraced the need for some back end changes and have coded a brand new look website which will go live in 2015.
What other bloggers are saying
Rachel Andrew The horrible implications of the EU VAT "Place of Supply" change
The Giddy Knitter WIP Wednesday: Solutions for digital businesses and EU VAT
Woolly Wormhead New EU VAT law - an important notice
In the press
The Guardian - New EU VAT regulations could threaten micro-businesses
The Scotsman - New VAT rules a threat to firms’ internet trading
The Telegraph - New EU VAT rules threaten to kill UK micro firms