This post is for knitting designers, online shops and platforms. If you’re a knitter, read this post instead.
Quick reminder: this legislation affects anyone who sells a knitting pattern download into the EU, regardless of where in the world your business is based. Sell one download to the EU after Jan 1st, and the sale should be taxed with VAT in the EU. The tax is based on the customer’s location.
Today I’m going to look a little longer at IF you need to register and remit VAT in the EU on your pattern downloads (digital services), and how this is done. You’ll need a coffee, or if this is all new to you I fear you may wish for something stronger.
I’m in the UK, so there will be references to the UK tax office (HMRC). It’s the tax office I know best.
I’m not registered for VAT and I sell my patterns on Ravelry. Do I NEED to register and remit VAT now?
If you are selling your patterns on Ravelry, their recommendation is currently NOT to register yourself for VAT if you would only be doing this to handle your Ravelry sales.
Ravelry recommends using the Ravelry integration with LoveKnitting to handle your EU sales, discussed in my previous post. LoveKnitting will charge and remit the VAT. You don’t need to worry about it.
You will need to activate the link on your pro account, and move your single patterns over, but the teams are working to make this as quick and easy as possible. Information on how to do this will be provided when the platforms are ready. I know it’s hard to wait. If you need something practical to do: decide what your prices will be in GBP, work out how to tackle any existing/planned promotions that won’t transfer to LoveKnitting (yet), and how you’re going to handle your ebooks, which similarly won’t transfer on day one.
I’m already registered for VAT and sell my patterns on Ravelry. How do I handle my Ravelry sales?
You’ll have to give this some careful thought. There are two obvious options.
Clearly, you can use the LoveKnitting link, like any other Ravelry designer, and let them handle the VAT for this part of your business, and pay their fees. Effectively, you’re wholesaling to LoveKnitting, as if they were a regular store listing your patterns.
Ravelry is recommending that you continue selling on Ravelry, use the location data they are providing, and remit the VAT yourself. This is because they don’t want you to have to pay a premium for a LoveKnitting’s services when you’re already setup to remit VAT yourself. However, HMRC has already said that they don’t want people remitting VAT for which they are not liable, so you need to decide where you think liability lies and what you think is best for you to do.
Update: Ysolda has also been heavily involved in trying to get to the bottom of the #VATMESS. Ysolda is VAT registered already, and has been advised that she can do the VAT due on her Ravelry sales herself. Karen, whom we must thank for bringing this whole thing to our attention on Ravelry, has been equally up to her neck in trying to get answers. She has been advised not to register for VAT in order to do a return for platform sales on which she shouldn’t be remitting the VAT. We are left wondering, on Twitter this morning, if the difference in advice is between those already registered and those considering registration?
Why on earth are we having to try to work this out ourselves, on Twitter, less than 3 weeks before it goes live?
I’m getting quite upset about the lack of information on details like these. There seems to be particularly scant information for those on platforms and their own website – they acknowledge people do one or the other, but what about those doing both? How do we grow without it costing us a fortune? I totally appreciate that the new guidance helps, but there are still grey areas that could be fixed to help us. We have @tagged in @hmrccustomers on the discussion, hoping for clarification.
I already have a question in to HMRC via email regarding this issue, seeking confirmation that there’s an opt-out for the already-VAT-registered, where they don’t have to use a Platform’s VAT remitting services (e.g.LoveKnitting), and can therefore save a big chunk of costs by doing it themselves. I would love to do this because it makes sense if you have your own website too, which I would love to do, but this whole thing is a barrier right now. I can see that it would be cost-effective for larger micro-businesses (can I say that?) to do their own return compared to paying LoveKnitting’s fees. I’d love the option.
UPDATED: I use the Ravelry cart to handle pattern sales on my website. Do I need to register and remit VAT?
Update: I’m going to talk about the Ravelry cart, which is what many have on their website. You will need to decide if you’re liable for the VAT, or if you don’t need/want to do anything with your setup. Take advice and act accordingly.
I ran through a purchase on a friend’s website, where she uses the Ravelry cart. To me (personal opinion), it looked like her website advertised the pattern, but all the payment handling, invoicing and pattern delivery was done by another website: Ravelry. I know my interpretation could be wrong, but it’s difficult (for me) to see how the cart is any different from selling directly via Ravelry. I have no official word on this. You need to make up your own mind and seek your own advice about whether you should be doing a VAT return for cart sales.
Update – info from Casey: The cart will follow your Ravelry settings for an EU sale and direct your customers via your EU settings, such as to LoveKnitting, depending on your preferred setup. This is important. It means that if you’re using LoveKnitting for your Ravelry sales, then your customers from your website will go this way too, with the attendant handling fees. Personally, my own website is looking simpler again in that I can use LoveKnitting settings via the cart to feel comfortable that VAT is being collected, but it makes my website very expensive when I will have to pay the extra fees. Every day there is more to think about!
It’s worth remembering that Ravelry is willingly offering the “change nothing” option on your account for Jan 1st so that people can stay in business, and so that they – and we – have more time to make everything work the best way possible.
I’m using my own website to handle my pattern sales. What do I need to do?
OK, so you have your own website, and it delivers a digital service, such as a pattern download or automated pdf email, to the customer. Your website doesn’t use Ravelry – the whole transaction is handled by you. Unless you have a special exemption, I’m going to assume you are therefore liable to report and remit VAT to the EU. But you need to seek advice, so that you are sure.
If you are based in the EU, seek advice from your local tax office regarding your personal situation because protection for micro-businesses varies in different EU countries. Businesses based outside the EU are consulting with their politicians.
I need to collect and remit VAT to the EU. Now what?
I am going to assume here that you’ve taken advice.
If you only sell to a few EU countries, you might consider registering and paying VAT in just those countries, on the sales you make. What if you sell to lots of EU countries, and not the same ones each month? Online customers are…global. You could choose to declare and pay VAT in each of the 28 member states. Yes, that’s actually an option. Keep breathing; there’s another way though I can’t lie and tell you it’s easy; it’s just not as hard.
The EU tax offices have developed a portal called MOSS (Mini One-Stop Shop) where you can declare all of your EU VAT in one place, online. You need your sales data broken out by country, but you only have to submit it in the one place via MOSS. You can read HMRC’s original guidance on MOSS.
I’m only going to pick out a few key points. This is a jumping-off point, to help you understand where you need to get up to speed on the details – everyone’s business is different. There are going to be a lot of questions to investigate, for your business.
When do I need to register with MOSS?
Originally, registration was required by Jan 1st. Check with the MOSS you intend to use.
Registration deadlines have changed at HMRC. Now, you only need to register by the 10th day of the month after you make a digital services sale in the EU. So, if you sell a pattern download on 8th January, you only need to register on HMRC’s MOSS by 10th Feb. This gives a little breathing room.
Where do I register?
Each EU tax office should have it’s own MOSS portal.
If you are based in the EU, you should use your own tax office’s MOSS.
If you are based outside the EU, you can choose a MOSS portal to use. It makes sense to choose a tax office that speaks your own language, if possible. For English speakers, this means HMRC in the UK, or the Irish tax office. Ireland is gaining a reputation as a good location for digital businesses.
If there are any issues with your MOSS return, they are resolved through the tax office in the country in which you registered. Given the plethora of languages across the EU, this is a relief.
What data do I need to collect and hold?
This is the part that is giving everyone nightmares. I can’t make this look attractive. Sorry.
You need to be able to prove the location of the customer in the EU, to the tax office’s satisfaction. HMRC guidance lists the requirements in point 1.5.
Yes, this means collecting a few very specific kinds of non-conflicting customer location data about the sale. Aaaaand then holding it for 10 years after the end of the year in which the sale happened – so more like 11 years.
I know. This is the big requirement.
People are wondering how you’d compare the bits of customer location data in the middle of a transaction, so that you don’t take a contentious sale, though I hear IT solutions are being developed.
Only now are payment processors such as PayPal stepping up with providing the appropriate data, such as IP addresses. Some payment processors, such as FastSpring can help with the whole process of VAT reporting. I’m in no position to recommend on these – all that most bloggers are saying is that they’re out there and you can look into them. Businesses are evolving to help with the problems we are facing – where there is a problem of this magnitude, you can be sure there are entrepreneurs on the case who would love to fix it for us (for a fee). I will be keeping an eye on the choices, as they develop. I hope the good ones float to the surface, quickly.
And then there’s the Data Protection legislation – it’s not yet clear what the implications are here, such as whether registration as a data controller is required, but certainly data has to be stored securely. (This is one of the most frustrating things – there are as many questions as answers.) Didn’t anyone wonder about the data protection requirements, when on the most basic level we’re required to store data securely and not for an unreasonable period of time. Did the tax office discuss with the data protection tsars whether 11 years is reasonable?
I’d also suggest you look at issues of where and how the data is required to be stored. I know I am raising more questions than answering them with that statement.
On a practical note, to help you get started and feel like things are moving forwards, Thomasina Cummings has blogged about MOSS and shared her own small-business spreadsheet, which is available to use. (Thank you.)
The amount and quality of data you need collect has just been reduced for micro-businesses in the UK. If you’re a micro-business, check the requirements where you plan to register, in case other countries are adopting HMRC’s approach. HMRC’s new guidelines only came out this week after pressure from businesses, so find a way to keep up to date locally – and apply your own pressure if necessary. HMRC is still under pressure to improve the situation for micro-businesses, even with these new requirements.
How do I keep up with VAT rates in the different countries?
MOSS holds all the rates and does the VAT calculations for you, producing one total tax bill. The amount you pay is divvied up behind the scenes by MOSS.
But you should be showing the customer how much they have paid in VAT, as part of their invoice. Also, there are rules in some EU countries about showing the customer the final price on the web page, not just at the till. This is the case in the UK – we expect to see the final price on the product listing, not a VAT surprise when we get to PayPal.
If you use a payment processor, check out the functionality they have available to help you. PayPal can add VAT to your list price depending on the customer’s location, but you need to switch it all on and keep it up to date…and workout how to handle the VAT display requirements in the EU. It may be possible to have a disclaimer that VAT will be added, but even if that’s legal it will be a surprise to many customers.
The EU has a VAT rate checker.
How often do I need to do a MOSS return?
I’m in the UK. Is there any extra help? I’m under the £81,000 tax exemption threshold. Surely I shouldn’t be paying VAT on my microbusiness?
Yesterday, HMRC issued additional guidance for UK micro businesses.
Enterprise Nation has a good summary of their meeting with HMRC on this subject.
One of the original issues with MOSS registration was that it required full VAT registration too. This was a non-starter for a lot of businesses because if your EU digital sales are only a small percentage of your business, you’d be liable for VAT (i.e. around 20% tax) on your whole business. The UK has generous protection for micro-businesses. There is now a way to register for VAT and MOSS, but without declaring VAT on your UK business, briefly:
Register for VAT. Register for MOSS. Complete the EU MOSS return. Remit Nil on your UK VAT return. And…the one piece of good news in all this…you can claim a rebate on the VAT you’ve spent on expenses associated with the non-UK part of your digital services EU business. This could be expenses that are directly attributable, or the percentage of your costs that relates to it. For example, if your non-UK EU sales make up 30% of your turnover, and you buy a car for general business use, then you could claim 30% of the VAT back. That has got to help with the extra admin costs.
What resources are available? How can I stay up to date?
Aside from the links in the text above:
- EU VAT Action has a good introductory round-up.
- Rachel Andrew is collecting links to official documentation and other sources.
- Suzanne Dibble (small business lawyer) covers some issues in more detail, and raises lots of good points.
- Facebook group Digital VAT 2015 is a broad forum for those affected.
- Follow the discussion on Twitter – search #VATMOSS and #VATMESS.
- If you’re in the UK, follow @HMRCcustomers on Twitter
- If you’re a Ravelry designer, watch for announcements in Casey’s EU VAT thread.
How can I join in the campaign to raise awareness of the impact of this legislation on smaller businesses, and try to change the worst parts?
Write to your parliamentary representatives and the politicians responsible for business, wherever you live. I got referred to right person at HMRC as a result of doing this. It can work. It is the only way they will feel our pain.
- Join in the discussion on Twitter. HMRC were overwhelmed by the response to their Twitter Q&A session, held recently.
- From EU VAT Action, complete the Survey: How Will The New EU VAT Laws Impact Your Business?
- From Change.org – a petition to the EU to halt implementation of the legislation for micro- and small-businesses
Take advice. Keep up to date.
Reflecting on what I’ve written, I’ve had to say “take advice” more often than I’d like, but this is the reality. As a writer, I’d love to have found all the answers so that I can share them with you. I am painfully aware that a lot of what I am sharing is questions to which you’ll have to find the answers for your own business. I hope at least that is helpful, in that you can look in the right directions. I’m painfully aware that it’s not as helpful as I would ilke it to be.
I don’t have enough facts, and I’ve already spent the last 4 days straight just looking at this stuff and writing. I have to stop!
The fact that I have more questions than answers says a lot: we just don’t have enough information or help.
Things are changing fast and some details remain unclear. Not everyone’s tax situation, or tax jurisdiction is straightforward. Keep up to date, because it will be in your interests. As you have hopefully gathered by now, the situation is complex and changing fast. Some details remain unclear.
But it is not insurmountable. This is just some tax, some extra admin. A lot of reading. I just wish the tax offices had spent more time talking to micro and small businesses. Earlier. Much earlier.
Now I need to go and knit.
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 or an online forum. 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.