EU VAT on knitting pattern downloads: Part 2

I’m sorry, this post isn’t about fluffy cashmere or pretty knitting either.

This post is for designers selling their patterns via Ravelry.

If you’re a knitter and want to know about changes to EU VAT legislation, read this post instead. It’s more important than you think.

For an introduction to the changes in the legislation, see my previous post, Part 1.

In this post I am going to discuss the options available to designers using Ravelry, when selling to customers in the EU after January 1st. I’m planning another post to cover reporting EU VAT via the MOSS portal.

At the time of writing, the options Ravelry will offer you are:

  1. Do nothing. Keep selling to the EU on Ravelry as if nothing has changed.
  2. Keep selling on Ravelry but report the VAT on EU sales yourself.
  3. Use the LoveKnitting link so that the VAT is collected and reported to the EU by LoveKnitting
  4. Divert EU sales to another website e.g. your own website so that you report VAT yourself, or to another platform that will report the VAT.
  5. Block sales to EU customers (last resort, gulp).

Let’s look at each of these in turn.

  1. Do nothing. Keep selling to the EU on Ravelry as if nothing has changed.

This option is for those who believe Ravelry is wholly responsible for paying the EU VAT, or who think they can dodge the VAT altogether. It is, in my opinion, also a catch-all for designers who are unprepared for Jan 1st – and it is generous of Ravelry to offer this.

What if it turns out Ravelry really is responsible for the VAT on sales made via Ravelry, and they should have collected and paid it, as far as the tax office is concerned? Ravelry will be left with a VAT bill they have to cover out of their own pocket. I’m not sure I’m comfortable with the ethics of leaving my patterns for sale to the EU on Ravelry, since the reason I got so involved with the VAT issue was because I was concerned at the threat of a huge VAT bill for Ravelry, as the platform through which I sell. This option leaves Ravelry bearing this risk, albeit hopefully only for some designers.

Because I think that (under the current setup) Ravelry will find the taxman knocking on their door over these sales, I’m not sure I can take this option, pleasant though it would be for my customers and myself to avoid the VAT hitting my prices. I know Casey feels comfortable about the risk; he doesn’t want to see choice for EU customers shrink catastrophically due to panicking designers. We don’t need to panic, truly.

At the very least, this option buys designers a chunk of time to find the right pattern-sales solution for them, rather than abandon their EU customers. We all really hope people won’t do that. This is just some tax; do-able, not a disaster.

Personally, I would like to leave this option to the people who are genuinely unsure or out of the loop. Ravelry is offering this option knowing that there is a risk to themselves. I’m starting to think the ethical option for me is to divert sales elsewhere, such as via the LoveKnitting link or another platform, to make sure that at least the VAT on my sales aren’t part of a future headache. If it turns out (somehow) that Ravelry aren’t liable for VAT on these sales, then I’m covered by the fact that my sales are on another platform, remitting the VAT. Win-win.

Or, as mentioned, maybe you think the designer is indeed liable for the VAT, but you are willing to make a stand and not declare the VAT yourself in the hope that you won’t be caught, or your own country will protect you from the legislation in countries to which you export? Then this option is also valid. (I have said already that I think it’s important to comply with my customers’ legislation, no matter how I feel about it. That’s my opinion. It may not be yours.)

Some EU designers have received advice from their tax office that indicates that they are not liable to pay VAT because their business is too small – they can enjoy a local VAT threshold and don’t have to remit VAT. You should have this in writing from your tax office, personally addressed to you, because this has not been a common response from the EU tax offices. I guess in this case it would perhaps lead to choosing this option, but I’m not sure where it would leave Ravelry since the individual designer might not be liable, but the platform may still be. We won’t know until the tax-remitting deadline passes.

  1. Keep selling on Ravelry but report the VAT yourself.

Maybe you’re already VAT registered. Or you’ve got your head around MOSS and want to use this because it looks more cost-effective than paying a platform a fee to do this for you. Ravelry is offering the option to carry on selling on Ravelry and report the VAT yourself. Ravelry is helping to provide customer location data in order to (hugely) facilitate designers handle their own reporting.

Now, I hate to keep harping on about where liability lies, but I’ve found the tax office to be a bit funny about people trying to pay tax for which they are not actually liable…and especially when they try to use the tax payment they should never have made to claim a rebate against tax they’ve paid (which small UK designers can do through new VAT/MOSS rules).

HMRC once literally made me jump through Byzantine hoops to claim a tax refund of around £50 to which they were determined I was entitled, even though I insisted it would cost me more in admin time to go through the process than the refund was worth. They do like things done right.

I don’t want to guess how this one will pan out as far as any risk to Ravelry goes. The tax office could be reasonable, and accept that VAT has been willingly paid by someone, but I’m not second-guessing this. Please seek advice if you are considering this option, especially if you are going to try to use it to claim a VAT rebate on business expenses.

Generally speaking – drifting off the Ravelry topic for a moment – I’d love to see an update to the legislation to allow someone who sells via a platform to opt to remit their own VAT, where the platform allows it, because for some small businesses this may be the most cost-effective solution. It might be cheaper to do your own VAT return than pay another platform’s fees.

  1. Use the LoveKnitting link so that the VAT is collected and reported to the EU by LoveKnitting

Just as it says. Ravelry and LoveKnitting are working hard so that designers can sell their patterns in the EU via LoveKnitting. This. Is. Great. 

EU customers will be diverted to LoveKnitting to complete their purchase.

Library link: The important point for our EU customers is that patterns bought on LoveKnitting will go into the customer’s Ravelry library. Hooray!

Pricing: will be in GBP. It will be the list price you set, plus the customer’s local EU VAT rate of around 20%, but this varies from 17-27% depending on their country.

There is no way, at least initially, to include the VAT in the price. A £3 pattern will appear to a UK customer at £3.60. A non-EU customer who goes onto LoveKnitting will just see the £3 price. This does mean that if you try to reduce prices to £2.50 to offer roughly the same £3 world-wide price to EU customers (absorbing an average VAT cost yourself), then a non-EU customer would be able to take advantage of your £2.50 ex-VAT price. So take care if you plan to adjust your prices.

Customers will need to create a LoveKnitting account in order to use the checkout. Hopefully this won’t be a barrier.

Fees: Leaving aside the VAT costs, because they will be added and then remitted by LoveKnitting, so they are outside of your finances (effectively), the fees on LoveKnitting will be 20% plus 25p. They are offering a commission-free period until June 2015, so we can try this option for free.

Loading patterns to LoveKnitting: LoveKnitting and Ravelry are working to make this transition as easy as possible – the holy grail is for designers to be able to load their pattern collection across in a few clicks. There is a lot to do so I, for one, am going to be happy with any level of integration that will help me make my EU customers happy. The work is being done over the festive period; hats off to them for even trying to attempt this. It deserves our cheers and constructive feedback.

Patterns are approved in a few days. Patterns with e.g. adult content may not be approved, so they won’t be available to EU customers. Pattern approval is LoveKnitting’s decision.

Ebooks: these can’t be listed on LoveKnitting on 1st Jan in the same way they are on Ravelry – unless you find a workaround. For example, some designers are looking at their smaller ebooks, with say a couple of patterns that make a set, putting them into one pdf and loading them as a single accessories-set pattern rather than an ebook. It is hoped this functionality will change in time.

Promotions: such as discounts, multi-buy and coupon codes won’t work on LoveKnitting on 1st Jan, but again there is hope that this will change in time.

I am hugely looking forward to seeing how the integration goes. I will repeat this endlessly…constructive feedback only, please. Of all the options, I suspect this is the one the majority of designers and knitters will most need to work.

  1. Divert sales to your own website to collect and report the EU VAT yourself, or via a different platform?

You will be able to choose to offer alternative purchasing links to EU customers. They will see an option at the top of the notes, instead of “buy on Ravelry”. You will need to supply the link address, or the customer won’t see the option.

You might want to send customers to a different platform where you prefer the setup, pricing options for customers, or the fees you pay. Bear in mind that customers like to put patterns in their library, offered through the LoveKnitting link. I can see it being useful to offer a lower-priced option (such as VAT-inclusive prices) to customers by offering alternative sources that don’t go into the Ravelry library. That way the customer can choose to have a lower price or the pattern in their Ravelry library. At the time of writing, I am still trying to find a suitable platform (for me) where I can offer the same VAT-inclusive prices to everyone because there is the obvious lack of control over pricing schemes when selling via a platform.

You might want to send customers to your own website, so that you can handle sales and VAT yourself. This saves you the platform fees, although obviously you have your own costs instead. This option also makes sense if you wish to claim a rebate, such as for microbusinesses using VAT/MOSS in the UK.

Note that when I say “your own website”, I am talking about a website which is yours and on which you handle the entire transaction and pattern delivery yourself, and not via the Ravelry API. I am not clear on what will happen with using the Ravelry API on Jan 1st because this carries some of the legal supplier issues of selling from Ravelry itself. I hope to update this when or if I have more information.

  1. Block sales to EU customers?

I really, really hope designers don’t go for this option. I hope people will consider the other options first. Ravelry has worked really hard to create all these options to keep us selling to the EU in the best way for each of us.

I do appreciate this option has to be available though, because, for some, even the tiniest bit of extra admin stress is just too much. It’s not everyone’s day job. And I respect that.

On the subject of stress, I think that’s enough for one blog post. To stay up to date, check Casey’s VAT announcements thread on the Shopkeeper’s forum.

I was thrilled to see new guidance from HMRC on VAT MOSS for micro-businesses today. I am planning a MOSS post, so this is great timing. Is it OK to say that I’m thrilled to read something from my tax office? Sign of the times.

Yes, I’m going to give that disclaimer again: This blog is provided for information purposes only. It is not intended to amount to advice. You should investigate the facts for yourself and not rely on the contents of my blog post. Seek professional advice before taking or refraining from action based on any of the information in this blog post. I am not liable or responsible for any reliance placed on the contents of this blog. These are big issues.

6 thoughts on “EU VAT on knitting pattern downloads: Part 2

  1. One thing that has been bothering me (one of many!) is the ‘cross-border’ element. It took me a long time to get it that Ravelry cannot rebut, and that the VAT-man is not going to hold me liable for VAT on my Ravelry sales whether or not Ravelry comply with the legislation, Before that I argued for Ravelry to offer an option to keep my UK sales out of Love Knitting, diverting only my cross-border sales. At present it looks like they will be offering that option. The problem is that I now think that Ravelry’s liability means that they will owe VAT on my Ravelry sales to UK customers as well as on my cross-border ones, because all sales of my Ravelry patterns to EU customers are cross-border for US-based Ravelry. So if I am going to help Ravelry avoid the VAT Armageddon by using the Love Knitting diversion, I need to divert my UK sales to Love Knitting as well as my other EU sales.

  2. Pingback: EU VAT on knitting pattern downloads: Part 1 | INSPIRATION KNITS

  3. This great thank you. Worth clarifying that blocking sales to EU countries is not an option if you are an EU designer as this falls foul of EU anti discriminatory legislation

  4. Pingback: EU VAT on knitting pattern downloads: Part 3 | INSPIRATION KNITS

  5. Pingback: VATmess update | AnnieBee Knits

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