One change for the New Year in the way we do business that has emerged in the last few weeks is the way that VAT is handled on inter EU sales of electronic products such as e-books.
In an attempt to do something about the likes of Amazon holing up in Luxembourg where the VAT rate is 3% the EU in its infinite wisdom has decreed that from the 1st of January instead of VAT being due in the Seller’s country it’s now due in the Purchasers. Anyone selling anything electronic after the 1st January will either have to register in all 29 jurisdictions, use the HMRC Mini One Stop Shop (hence #VATMOSS) put it through a player like Amazon or iTunes and pay the necessary fees to them or stop trading into Europe altogether.
This is particularly bad news for the substantial number of 1 man bands selling logos, e-books and knitting patterns particularly as in its original interpretation the sale of 1 e-book to Belgium would result in a 1 man band under the VAT threshold having to register for VAT for all UK sales as well. Many of them have been threatening to down tools and shut up shop rather than comply and a storm of protest under the hashtag #VATMOSS #VATMESS has been going on twitter and Facebook.
All this at the time when the EU Commissioner in charge of all things digital– a Mr Andrus Ansip – has just given a speech banging on about how he wants to remove all the barriers to digital trade within the EU. Shame he has such a great example of the law of unintended consequences on his hands.
But despite the rather dismissive attitude of the Business Secretary (which has done him no favours with the small business community) I have been rather pleasantly surprised by HMRC’s response. They have not only ruled that non VAT registered companies can stay non-registered for UK sales but have also come up with some very clear guidance as to what’s in and what’s not. The current regime is aimed at electronic sales and is outline here in this screen grab from the HMRC guidance.
VAT rules for digital sales
It’s true that it’s absurd that an e-book attached to an email as a PDF doesn’t count but one accessed via a link in an email does but that’s not the fault of HMRC who have done their best with the limited wriggle room they enjoy.
Apparently HMRC raised the issues of sub vat threshold companies in 2008 when this was first enacted (you would think we would have heard more about such a radical change wouldn’t you?) but apparently no-one in Europe cared a fig.
This is of course a dry run for (probably) next January when this dismal process will be applied to ABSOLUTELY EVERYTHING but at least by then there will be software plug-ins readily available and proven to collect the 2 separate pieces of evidence that are required to establish the jurisdiction of the purchaser.
Of course the guidance doesn’t yet cover the case of a Hungarian national who uses his I-pad to buy an e-book from you while he’s in Spain on a train that started its journey from Paris but that’s a problem for another day.
What to do?
I’m going to attach PDFs to emails for e-books and bundle some live webinar support into the online video courses I have. Then I’ll evaluate which solutions look effective over the next year and get back into the 21st century some time next year once a proven platform emerges.
How about you?
If you need any more info on this you can contact me, Alan Rae on 07958 200112