What’s happening on Jan 1st?
Digital services – such as your knitting pattern downloads – will be taxed with VAT in the EU.
Reading this in the EU? You can expect to pay around 20% extra in VAT on many of your pattern downloads. You need to read this, painful though it may be.
Not in the EU? Read-on too, because other countries are working on similar changes to how the Wild West of the internet is taxed. You can be sure that your government is watching this with interest because millions of dollars of tax are at stake.
Why has VAT legislation changed?
In the past, VAT on eservices was charged based on the supplier’s location. This created a loophole. Big businesses legally established themselves in countries with low VAT, avoiding a fortune in VAT payments to the countries with which they do most of their business.
From Jan 1st 2015, VAT on eservices will be paid based on the customer’s location, in order to close this loophole. VAT will still be collected and remitted by suppliers, not customers…but the changes make administration more complicated for many businesses.
Who is affected by the new rules?
- Knitters in the EU who buy knitting pattern pdfs online.
- Users of Emarketplaces such as Ravelry and Etsy, and the emarketplaces themselves.
- Designers selling digital pattern downloads to customers in the EU from their own websites.
I live in the EU. What changes will I see on Ravelry?
News is coming out every day, so this is all subject to change, but for now:
Ravelry is working with LoveKnitting to provide a way for EU customers to buy patterns, with LoveKnitting collecting and remitting the correct VAT to the EU. LoveKnitting will charge 20% on top of the designer’s regular Ravelry price to cover the VAT costs.
Patterns bought this way will still go into your Ravelry library. To make a purchase, you will be diverted from the Ravelry pattern page through to LoveKnitting, and charged the VAT.
At the time of writing, ebooks will not be available through LoveKnitting on Jan 1st, though workarounds may be possible and it is hoped ebooks will be formally implemented in the future.
Ravelry promotions and coupon codes – such as buy this pattern and get another for free, or 20% off when you buy 5 patterns – won’t work on LoveKnitting initially, but again it is hoped this will change in the future.
Legally, the Ravelry pattern page should show a UK customer the final price including the 20% VAT, but it is worth checking details like these are in place, especially when the system is newly live. And on that note…
Be kind to the new setup and report any problems constructively. The Ravelry and LoveKnitting teams are working very hard to make the link work, on a tight deadline that they didn’t choose, and across the festive season.
Will Ravelry’s EU customers only be able to buy through LoveKnitting?
Some designers will choose not to use the LoveKnitting link. Designers have to choose to switch it on and make the patterns available on LoveKnitting. It is expected to be a popular option, but we won’t know how popular until Jan 1st.
Some designers may choose to handle the new VAT legislation differently and may:
- Still make the pattern available on Ravelry to the EU too, just as before.
- Offer an alternative website/source where you can buy the pattern. For example, you may be sent to the designer’s online shop, just as some designers work now.
- Switch off EU sales from Ravelry users altogether.
- Prevent EU customers from buying on their own websites.
Both of these last two cases are hoped to be a truly tiny minority, but there may be a few more who are not ready for the changes and block sales at least as a temporary measure. It is impossible to predict how many designers will react in this way.
Because of the range of options available to designers, and the fact that these are still changing, your first port-of-call to discover where to buy a pattern listed on Ravelry will remain the Ravelry pattern page. This includes my designs – you will continue to find them all via my Ravelry pattern pages, just as you can now.
Will prices stay 20% higher?
According to a Ravelry poll of shopkeepers, a significant number of designers want to absorb the VAT costs, because when averaged out over our worldwide sales it works out as a tiny percentage compared to charging our EU customers 20% extra. It’s easily absorbed and easier (therefore cheaper) administratively than dealing with different prices in different regions.
However, at the time of writing, LoveKnitting will only charge VAT on top of the list price to EU customers. They can’t offer an inclusive (flat) price – at least not yet, but we hope it will change. So, on Jan 1st if you’re buying through LoveKnitting so that the patterns go into your Ravelry library, the price you pay will likely be 20% more than the pattern is priced at on Ravelry are today.
Designers with their own websites, where they have full control of pricing, may choose to offer the same price to all customers, or add 20% to prices to EU customers.
Designers who choose to keep their EU sales on Ravelry will be offering the same price to all customers, just as they are now.
What if I live outside the EU? How will pattern purchasing work?
If you are a knitter outside the EU, very little will change. Patterns will still be readily available through Ravelry, just as they are now. Pattern purchases will not be subject to EU VAT.
If you are outside the EU and buy a Ravelry pattern to gift to a knitter in the EU, you won’t be charged VAT. The VAT is calculated based on the buyer’s location, which is your location, not the lucky recipient’s.
Are there things that will affect everyone?
The upheaval is causing some smaller designers, or those for whom pattern sales is a tiny part of their business, to consider stopping offering designs for sale. For example, for some yarn suppliers, it makes offering pattern support via their own websites too much of an administrative burden. It is also making some new designers delay or abandon start-up plans – at least until the dust settles.
There is a workaround that if patterns are emailed out manually (remember the olden days) then they are no longer a digital service. This avoids the EU VAT issue. Some designers may do this, so bear with them – at least you will get your pattern. Everyone is doing the best they can to adapt, and it isn’t the same solution for every business.
I’m going to take a good look at my queue and see if there are any patterns that might fall into this category.
Update to the update: Casey has confirmed that even if a designer stops selling a pattern and deletes the pdf from sale, your copy will continue to live in your Ravelry library. Phew, one less thing to worry about.
What about free patterns?
Free patterns are unaffected because no money changes hands. Free patterns will continue to be listed on Ravelry, just as they are now.
Anything else I should know?
Suppliers will be legally required to keep information about your purchase for 10-11 years. Suppliers need to prove, with 2 pieces of non-conflicting evidence, that they are sure of your location. Acceptable evidence includes IP address, billing address and bank location. Yes, there are data protection concerns here.
Is it just me, or is anyone else thinking about what’s in their queue right now?
I say: If you’re in the EU, look at your Queue.
I’m not going to panic, but I have started doing a little light shopping…But at least this time I’ve got a good excuse: I’m not spending more money on patterns, I’m merely saving myself the VAT (ha ha – got to laugh, or we’ll cry).
Want to know more? I am planning another blog post for designers, with more detail and resources.