Digital product sellers, are you aware of this?

[Videoguy]

If you sell downloadable goods or telecommunications services, the VAT rules are changing from 1st January so that you will have to charge VAT at the rate being charged in your CUSTOMER'S COUNTRY rather than this country. You'll also have to remit the payment to the customer's VAT authority, and charge VAT even if you're not VAT registered in the UK.

Read more here: http://ec.europa.eu/taxation_customs/taxation/vat/how_vat_works/telecom/index_en.htm#new_rules

Personally, I think this will be a right PITA and will stifle EU commerce. Your thoughts?

 

[paulears]

How would somebody who is not VAT registered do it? There is currently no facility to just send HMRC money if they don't have you on the system? The other thing is of course that if they pay by Paypal, then how do you know where they live? Plenty of people have UK Paypal addresses, but are in fact resident abroad? Confused?

 

[kevinof]

Just a clarification - these changes only apply if you are selling to a consumer. B2B sales are not affected.

 

[antropy]

If you sell downloadable goods or telecommunications services

From that link it seems like downloadable goods are unaffected? It seems to be providing telecoms that is affected?

 

[kevinof]

Any digital goods come under this scheme. If you sell downloadable products or services to consumers then these changes apply to you.

 

[paulears]

It even mentions software - horribly complicated documents - and it does look like a real disaster in the making, because if non-VAT registered businesses have to do it, how will they actually know about it, because who is actually telling them, or even knows they do it.

 

[kevinof]

Check out HMRC Vat Moss site .(can't post link as I'm a newbie here). They have info on what to track, how to track and more. Doesn't affect our business as we're B2B but you are correct - this will be a nightmare for any non vat registered business.

 

[Videoguy]

It even mentions software - horribly complicated documents - and it does look like a real disaster in the making, because if non-VAT registered businesses have to do it, how will they actually know about it, because who is actually telling them, or even knows they do it.

Exactly. The way I see it there are 3 options here:

1. Sell via a 3rd party like Amazon - who already take care of all the VAT anyway, but charge a hefty fee for doing so.
2. Register for the VAT Moss scheme (see link at the bottom the the page here: http://www.hmrc.gov.uk/posmoss/index.htm?WT.ac=VAT_POSjan). A lot more hassle and paperwork.
   
3. Don't do business with other EU countries - which rather negates the whole point of being in the EU. It would seem the onus is on YOU, the supplier, to PROVE the customer is a business, presumably by asking for their VAT number. If they haven't got one, you'll have to treat them as a consumer.

None of these options is particularly appealing, although I'd probably go for option 1 rather than the others.

I reckon that 99% of digital on-line sellers don't know anything about this, and will get a rude awakening when the men from HMRC come knocking on the door!

 

[Raw Rob]

I reckon that 99% of digital on-line sellers don't know anything about this, and will get a rude awakening when the men from HMRC come knocking on the door!

But it won't be HMRC, it will be the tax authorities in other EU countries...

You know, I thought the Cookie laws were the worst laws I'd ever seen, but this is much, much worse. As downloads are such a small part of my business, the only sensible option for me is to stop selling to the rest of the EU. Great, EU laws which create barriers to trade within the EU, exactly the opposite of what the EU is supposed to be for.

(And as my ebooks are in English, I can keep selling to the non-EU English speaking countries of USA, Australia and NZ without issue.)

 

[14Steve14]

I am totally confused with this bit of legislation. I currently am not registered for VAT in the UK. I sell digital goods as well as physical products. Does this mean that I will now have to register for VAT but only on the digital goods and not the other items sold in my store. Seems to be overly complicated and a huge burden on small businesses.

I am currently looking at a way that I do not sell download products to customers in the EU as it seems to be the easy way out. People in the EU will have to buy what was their download on a disc or something or am I getting this all wrong. I spoke to HMRC today and they were unsure as I am not registered for VAT in this country.

The sooner we get out of the EU the better.

 

[VPPJavaTraining]

I've only found this forum today as a result of searching for information about the VAT changes (so that's one positive from this!) For our business this is a really painful piece of legislation. We sell downloadable training courses (which are certainly e-services under the official definition) so will need to make this change from 1st Jan. Despite the fact that we are VAT registered in the UK, I knew nothing about this change, and only did find out from attending a UKTI seminar this morning.

For a business of our size (there are just 2 full time and 1 part time) the additional admin to complete a MOSS VAT return each quarter is going to be a real pain - as far as I can see it's not something that can be set up in Sage (which is what we use for book-keeping right now) and because you need to do various currency conversions as part of the process, it's going to be a labour intensive manual task... plus we then have to remove these transactions from our UK tax return also!

The changes to our e-commerce sales site are pretty significant (we need to now have VAT rates for each country of course... that's a real challenge), and we now need to keep an eye on any VAT rate changes in all the states.... and the most worrying part is that we need to provide compliant invoices as per each member state's rules, rather than UK compliant invoices... so we just need to refer to all 27 other states' guidance on how these need to be formed.

We also have a further pain point... our primary products are a download but we offer an additional DVD option on some products, which if selected you pay a small additional fee for and we post it to you - the DVD is just a backup of what you can download, so it's aimed at people with slow broadband connections.... we well them at cost, and don't sell very many. As far as I can tell, because the DVD is a physical product, we have to account for that using UK VAT... so if you are a consumer in an EU country, and want a DVD too... well that really complicates things...!

Our current thinking is that we have to get fully compliant - we can't stop selling to the EU - that will hurt our sales too much, but it seems like really bonkers legislation. It's painful for the SME who has to implement the rules (us) and painful for the customer who has to pay VAT on their product at a potentially higher rate than we were charging previously.

I agree with the person who said it would be better if we were not in the EU.... our American customers don't pay VAT on their downloads so it's cheaper for an American to buy one of our courses than a Frenchman...

 

[kevinof]

As far as I can tell the reason this was brought it (and it's not just the UK) was to stop the likes Amazon and the other big retailers basing their Euro sales in say Luxembourg and therefore availing of their low vat rate of 15%. However these large businesses are well able to manage the additional workload - it's the small sme (as always) that takes the hit.

 

[paulears]

Business users who are VAT savvy think it's a crazy and time consuming process, but how will the large numbers of non-registered people even find out about it. These are more likely to do their own accounts due to the lower turnover, but could presumably get fined - BUT - who would fine them? The EU? The destination country? Can't be HMRC because they are not involved in this VAT transaction at all, are they? What a ridiculous system.

 

[singhabhishek251]

This is a real pain for everyone selling these things I have seen many small traders selling something just to make some small amount and I do not think that this is fair for them. Do you suggest something alternate to overcome this and make it smooth.

 

[maxrphillip]

Just a clarification - these changes only apply if you are selling to a consumer. B2B sales are not affected.

This is the truth of the matter!

 

[ecoleman]

How about advertising your products as a DVD / CD which will be posted to the customer. As an additional benefit, though you provide the customer a link where they can also download the content to avoid having to wait for the post.

 

[The_Bag_Supplier_Ltd]

How about advertising your products as a DVD / CD which will be posted to the customer. As an additional benefit, though you provide the customer a link where they can also download the content to avoid having to wait for the post.

Sheer brilliance ecoleman. Years ago I was involved in a garden centre business who used to open Sundays when Sunday Trading was the issue at hand. We could sell anything perishable, for example cut flowers, but we could not sell a growing plant such as a house plant. To comply and at the same time circumvent the obstacle we offered the house plants for free when we sold the customer an overpriced bunch of very cheap cut flowers. Was perfectly legal and though we had to explain to the customers what was going on and why they were all receptive to the idea. Messy but doable. I haven't read the legislation and it doesn't presently affect me but what a perfectly reasonable workaround as long as the loophole hasn't been closed. I must add the Sunday Trading loophole I just referred to was eventually closed

 

[VPPJavaTraining]

How about advertising your products as a DVD / CD which will be posted to the customer. As an additional benefit, though you provide the customer a link where they can also download the content to avoid having to wait for the post.

It's an idea... but unfortunately not a workable one for us as most of our customers don't want DVDs so we don't have to hold much stock, and on the odd occasion someone does want one, we just post one (actually we get them "printed" on demand). We're currently thinking that we'll stop selling DVDs through the site and just sell downloads, and if anyone wants a DVD they can buy one from Amazon... not ideal but it seems like the only do-able option without lots of systems work.

Whichever way you look at it - it's a bonkers piece of legislation. I have a side business which does web hosting... if one of our UK customers decided to relocate to Spain we would have to register this company with the MOSS system and complete a quarterly return - a huge administrative burden for a single customer... And our contracts have a termination clauses in them which means we can't just say "sorry we can't supply you any more"... am looking now at new contracts that say if you move out of the UK we will cease to supply you.

I can't believe how little this kind of information is being publicised.

 

[abbasmuraj]

"You have two options:
1) Register to pay VAT in each EU country you have customers and file a tax return in each country every year.
2) Use the VAT Mini One Stop Shop (VAT MOSS) portal so you just file a single return and pay HMRC each year.

With the first option, you need to understand that the UK has a very high threshold before businesses are require to register for VAT. At the time of writing, this is £81,000. Other EU countries have a much lower or zero threshold. Therefore while you may not sell enough to need to register for VAT in the UK, you may need to register in other EU countries if you even sell one “digital service” to someone in that country.

The second option is only available if you are registered for VAT in the UK, which as stated you only need to do if you are selling more than £81,000 of services a year. You can voluntarily register for VAT if you wish.

You may well want to take professional advice on what is the best approach for you to take."

The above is taken from a blog post from another site.

 

[Christine Hough]

From that link it seems like downloadable goods are unaffected? It seems to be providing telecoms that is affected?

I have been told that it will affect me and I do not even download the product. Clients access it online.

I cannot stop European customers from buying as it is on the Internet and so I will just have to refund them and give it to them for free. The level of trade I do in Europe make this the only reasonable thing to do.

The bureaucrats have no idea.

 

[Christine Hough]

Whichever way you look at it - it's a bonkers piece of legislation. I have a side business which does web hosting... if one of our UK customers decided to relocate to Spain we would have to register this company with the MOSS system and complete a quarterly return - a huge administrative burden for a single customer...

Too true. There are huge numbers of people this will affect.

 

[Countrymun]

I wonder why it applies only to downloaded rather than physical products? We have had businesses in EU asking to reclaim their VAT but this new rule applies to only downloads?
It doesn't make sense! We are not VAT registered at the moment so we just tell EU retailers that we don't add VAT so there is nothng or thm to reclaim. We sell to consumers in other EU countries, so ifthis gets extended to all products sold, we would need to stop selling in EU.
And ... how can this new rule apply to SMEs in UK who are not VAT registered - it is a nonsense! Surely it should just apply if you are registered - but as others have said, even then it makes a nonsense of the claim that being in EU makes it easier to sell to European countries.
In USA i am sure some states have differing taxes and the onus is on the buyer to declare and pay tax. That would at least make it easier for sellers.

 

[14Steve14]

This stupid bit of legislation from the Eu was obviously put in place to stop large companies avoiding VAT by registering in a lower VAT country. In that way its a great bit of legislation, but as with most things from the EU it has not really been thought through on how it will affect smaller businesses. I was thinking that if enough people complained, something may get done, but who to complain to.

 

[14Steve14]

I have just spoken to a lovely lady at HMRC about this. She says they have been receiving lots of calls from panicking small businesses about this. She has even managed to put my mind at rest so it must be saying something. This crazy legislation only applies to those that are currently VAT registered, or soon to be registered in the UK. She says that it will cause many headaches for many businesses as it adds to any companies VAT administration if they have anything to do with any type digital product or service that is sold to private consumers in the EU..

So if you are a NON VAT REGISTERED business you have to do nothing, that is until you reach the VAT threshold.

 

[Raw Rob]

So if you are a NON VAT REGISTERED business you have to do nothing, that is until you reach the VAT threshold.

That's not what everyone else has been saying. I found this, although it is from Google Cache as if you click on the link, it now redirects to a page about MOSS:

These changes will affect all businesses that supply digital services to consumers, whether or not they are registered for UK VAT. This is because there are no registration limits for digital service supplies made to consumers outside the UK. Any business supplying digital services to a consumer in another Member State therefore has to charge VAT on the supply in that Member State and register for VAT in that Member State.

This is very clear, although as I said, it no longer exists on the internet, and none of the new pages are specific about it.

While reading and trying to get my head around everything, I found this on the Europa website. Shows how silly and complicated it is:

A French customer of a Swiss telecoms operator using their mobile phone in France will be charged French VAT.
When using their phone while on holiday in Greece, the customer will be charged Greek VAT on the calls made from Greece.

But the UK GOV website seems to contradict this:

the consumer location will be the country code of the SIM card

So, as I said before, I will just cease selling ebooks to the rest of the EU, it's just a very silly law.

 

[StripedSparrow]

For those businesses thinking about preventing non-UK, EU customers from purchasing digital products, this would appear not to be an option: the Service Directive prohibits the discrimination of customers because they are in a different member state.

http://ec.europa.eu/internal_market/services/services-dir/guide/index_en.htm#maincontentSec4

This really does leave micro enterprises - particularly start-ups and new businesses - in a bind: either risk prosecution for discrimiinatory trade practices, register for VAT and/or spend a disproportionate amount of time having to deal with multiple regimes, bureaucracy and bookkeeping.

 

[Countrymun]

Hi Christine,
Couldn't you do similar to the suggestion from another poster and say people in EU must "buy" a printed leaflet or something that will be posted out to them and can then access your product online without charge?
It seems a shame not to get paid from them.
Do they get a timed access to the product - eg one month? You could say they can have access immediately while they await their postal purchase?

As you say, you can't stop them from buying - but if it's a product they will want to access more than once then you can email immediately after purchase, explain that you cannot sell to their country and will need to refund and cancel their access BUT if they prefer, you can exchange their purchase and arrange for XX to be posted out and you will let them have free access to the online product?
(That's assuming it's worthwhile doing that - depends if the product online costs £1 or £20

 

[Countrymun]

This doesn't affect us (in its current form) but if some businesses feel it will be real burden then they could try to get support from their MP/ Federation of Small Business etc - or you could start an online petition at change.org
You can also start a petition on the prime minister's No 10 website - if it achieves 100,000 signatures it is usually given debating time in parliament.
just a thought.

 

[japancool]

It's great, David can put it on the negotiating table at the same time as he negotiates EU immigration caps.

 

[VPPJavaTraining]

It seems there already is a petition on change.org.... I don't think I can post links as I'm too new, but there's a twitter hashtag of vatmoss and looking for that should lead you to the petition.

I don't see how a petition can make a blind bit of difference myself but if it does work, i hope it does quickly, before we invest significant amounts of time in getting our site compliant!

 

[MattCollins]

Here's a link to the petition: https://www.change.org/p/vince-cabl...old-for-businesses-supplying-digital-products

 

[Philip Hoyle]

When I went on a course re this a few months ago, the speaker said that the original proposal was for all goods exported into the EU, which was watered down to just electronically supplied goods. He was of the opinion that once it had bedded down, in a few years, it would be expanded to physical goods too.

 

[StripedSparrow]

There's a piece in City AM that expands on the lunacy of this new requirement: http://www.cityam.com/1412620320/london-s-thriving-tech-sector-under-threat-bonkers-eu-vat-reforms

 

[The Byre]

1. How does anybody know where the vendor is located? Our servers are in South Korea, our URLs are dot-coms.

2. How does the vendor find out where the customer is? A download is a download and a PayPal or CC transaction is anonymous. Is the vendor supposed to track every IP address?

3. According to most EU national laws, all companies are VAT registered. In the UK small companies do not have to be registered. According to German law, all customers must pay German VAT to our German subsidiary, but according to this ruling, all EU regions must either be ALL dealt with on a country-by-country basis, or through a VAT MOSS. So which is it?

4. What happens if the customer appears to be in one country and then it transpires much later, the he/she was in another?

5. I am hearing different stories! So which is it - everybody or just those that are VAT registered?

6. According to EU law, B2C prices must include VAT. Exactly which VAT does the vendor display?????

I'm sure that I can think of other anomalies, but they are the ones I can think of, off the top of my head!

 

[Raw Rob]

There's a piece in City AM that expands on the lunacy of this new requirement: http://www.cityam.com/1412620320/london-s-thriving-tech-sector-under-threat-bonkers-eu-vat-reforms

I'm not sure if this interpretation is correct, but if true this from that article is insane:

This means a French person travelling from London to Paris by train, having passed through the Channel Tunnel, could purchase an online subscription, connecting to the French mobile network, with a French IP address, and using a French credit card, but it would be correct for VAT purposes to show this as a UK customer. Getting this wrong risks an unlimited fine, even though the VAT rate in both countries is 20 per cent.

 

[japancool]

If the EU is going to raise barriers to doing cross-border business like this, why are we still in it, I wonder?

 

[Raw Rob]

An open letter to the British government:

Re: New VAT legislation
What were you thinking? These new laws are insane. Firstly, for non-VAT registered businesses, just leave them out of it. Do you think a new business is going to work out how to deal with charging a different prices to each of the 28 countries in the EU (with a total of 75 different VAT rates)? Or will they just give up and not bother?

For the rest of us who are VAT registered, well, my thoughts again are, just don't bother. How much more complicated can you make doing business? For my business, my first thoughts were to just stop selling digital products to the rest of the EU. Concentrate on the English speaking markets of the UK, USA, Australia and NZ. But I have been told that would also be against the law. As I only sell a small amount of digital products anyway, the only sensible option for me is to not bother any more, it would take me many, many years to recoup the costs of implementing this system. Is this good for business?

But if you really must do this, then we need advance notice. At least 2 years. You need to write to all the eCommerce software suppliers, accounts software producers and connecting systems so they can update their software so it will charge people the correct amounts automatically and submit the required info. Small businesses can't afford to spend several thousand pounds to update their websites every time the law changes.

And deciding which rate of VAT to charge - the rules are unworkable. You want 2 non-conflicting pieces of information to prove where the customer is? In standard ecommerce we only have 2 pieces of information, the customers IP address and their billing address. If they pay by PayPal, we don't even get their billing address. IP addresses are an unreliable geo-locator, so they will often conflict. Just as an example - my IP address usually shows me in Italy (recently it's also been showing that I am in Greece), my physical location is actually Portugal, and my billing address is the UK.

Please speak to small businesses who this will affect, learn about the issues and get rid of (or at least fix) this very broken law.

 

[Raw Rob]

I had another thought on this. As mentioned by Philip above, it seems they want to introduce this on physical goods in the future. The worst part would be working out which VAT rate to charge. There are 28 EU members, with a total of 85 different VAT rates, so for each product you sell, you need to find out which VAT rate to charge for each country.

If the rest are like the UK, it will be a nightmare, with extremely complex rules as to which products get reduced rates. For example, who knows the difference between a cake and a biscuit? According to HMRC "a cake is zero-rated even if it is covered in chocolate, whereas a biscuit is standard-rated if wholly or partly covered in chocolate or some product similar in taste and appearance." It had to go to court to decide whether Jaffa Cakes were cakes or biscuits so that the correct VAT rate could be applied, see http://www.hmrc.gov.uk/manuals/vfoodmanual/vfood6260.htm
(They are cakes by the way, so they are zero rated even though they are partly covered in chocolate.)

 

[The Byre]

I had another thought on this. As mentioned by Philip above, it seems they want to introduce this on physical goods in the future. The worst part would be working out which VAT rate to charge. There are 28 EU members, with a total of 85 different VAT rates, so for each product you sell, you need to find out which VAT rate to charge for each country.

More to the point, you are legally obliged to display the gross price. But which one?

 

[14Steve14]

I see that there has been a slight change by the UK government. Not that it really helps. http://www.telegraph.co.uk/finance/...ro-firms-as-HMRC-tweaks-EU-VAT-MOSS-rule.html