Digital goods/VAT changes affecting *all* non UK only suppliers even tiny ones

[Etched Pixels]

Lovely surprise for all of the small model traders who sell digital product (traim sim downloads, print your own model kits etc) outside of the UK. The EU changed the rules so that digital goods are taxed where bought - to stop certain big companies abusing the EU tax rules. The UK is implementing these rules but has decided their is *no* minimal value.

 

If you sell £1 of digital goods to any other EU member state from January 1st you are required to

- register for the UK VATMOSS scheme

- charge the correct extra (varies by country and product type - choice of over 50 rates!) fee on each download

- submit appropriate VAT returns

 

http://www.telegraph.co.uk/finance/businessclub/11254829/New-EU-VAT-rules-threaten-to-kill-UK-micro-firms.html (although the problem appears to be the UK lack of a floor value not an EU one)

 

http://www.digitalartsonline.co.uk/news/creative-business/vat-moss-facts-for-creative-professionals/

 

The rules also apply to anyone outside the EU selling digital goods into the EU, although I imagine they'll have trouble trying to extradite you all for tax fraud 8)

 

There is one bizarre exception that may help. If you send the goods by hand in an email the rules are different!

 

Naturally enough as with everything else today there's a petition about it 8)

 

https://www.change.org/p/vince-cable-mp-uphold-the-vat-exemption-threshold-for-businesses-supplying-digital-products

 

Alan

[melmerby]

See this post on the Freiwald Forum:

 

http://www.freiwald.com/forum/viewtopic.php?f=10&t=23034

 

Keith

 

EDIT

 

Items are downloaded and the key code is sent by e-mail.

[raymw]

I expect it will be changed, somehow. How about shareware, or whatever it's called if you like what you try and send the guy some cash? How does he know what part of the world you're from?

 

There has always been the situation if you buy a book with a free cd in the back - book not vatted, but cd is.

 

Keeps a few folk employed, I guess. It'll all settle down.

[frobisher]

In a nutshell, it will be expedient to be VAT registered to sell digital goods from the UK within the EU or use a publishing service that handles that side of things for you (i.e. correctly reports and pays VAT on the sales made on your behalf and then makes payment to you for your portion after all VAT is deducted).

 

As I understand it, of the mobile stores iTunes are nearly sorted out for this, Google Play leave this up to you to sort out, Amazon, Microsoft and Sony have full reporting and payment systems ready to go now.

 

You don't need to actually be VAT registered, you just need to pay the appropriate VAT on each sale to the correct authority (this is however a nightmare, and some countries require you are VAT registered to make such a payment). UK-VATMOSS (for which you must be UK VAT registered) "merely" gives you an easy way to make those payments.

 

Anyone in the digital realm should get proper accountancy advice on this.

 

This doesn't affect shareware payments. Those are donations/gifts to the author.

[Crosland]

At least it has now been amended so that you will not need to charge VAT on sales within the UK, which was the case initially http://www.telegraph.co.uk/finance/businessclub/11268706/Victory-for-UK-micro-firms-as-HMRC-tweaks-EU-VAT-MOSS-rule.html

 

Andrew

[Edwin_m]

See this post on the Freiwald Forum:

 

http://www.freiwald.com/forum/viewtopic.php?f=10&t=23034

 

Keith

 

EDIT

 

Items are downloaded and the key code is sent by e-mail.

Even though I have a login on Freiwald, I don't seem to have privileges to read this post! 

[melmerby]

Just tried this without logging in:

 

http://www.freiwald.com/forum/viewtopic.php?f=10&t=23776

 

It goes straight to the topic.

 

Keith

 

EDIT

It seems the link is different if viewing from within the forum and from outside!

[frobisher]

At least it has now been amended so that you will not need to charge VAT on sales within the UK, which was the case initially http://www.telegraph.co.uk/finance/businessclub/11268706/Victory-for-UK-micro-firms-as-HMRC-tweaks-EU-VAT-MOSS-rule.html

Which is fine if you restrict your sales to the UK and non-EU...

[Crosland]

Which is fine if you restrict your sales to the UK and non-EU...

 

No need for any restriction. The point is that even if you register for VAT to sell to the EU you do not need to charge VAT on UK sales,which was the case under the original plan.

 

Andrew

[Pacific231G]

No need for any restriction. The point is that even if you register for VAT to sell to the EU you do not need to charge VAT on UK sales,which was the case under the original plan.

 

Andrew

All slightly weird. I assume the aim is to prevent companies selling goods that have no physical existence such as software from artifically choosing the lowest VAT territory and claiming that all their sales are from there. You see this often when buying ostensibly from a UK supplier but finding that you "really" bought from someone in Luxembourg or Ireland.

I suppose this could actually be useful to me in selling articles to French magazines as the rate for writers and composers is 20% here but only 5.5% there so I'd now presumably add the lower amount to my invoices.

[frobisher]

No need for any restriction. The point is that even if you register for VAT to sell to the EU you do not need to charge VAT on UK sales,which was the case under the original plan.

Yes, but the pain in the butt from this is the need to track and charge VAT correctly within the EU which you can only avoid by not selling to the rest of the EU...

[frobisher]

I suppose this could actually be useful to me in selling articles to French magazines as the rate for writers and composers is 20% here but only 5.5% there so I'd now presumably add the lower amount to my invoices.

That's a Business to Business transaction if you're both VAT registered; certainly from UK to those within the EU provided you have their VAT number on the invoice, you don't add VAT.

[melmerby]

All slightly weird. I assume the aim is to prevent companies selling goods that have no physical existence such as software from artifically choosing the lowest VAT territory and claiming that all their sales are from there. You see this often when buying ostensibly from a UK supplier but finding that you "really" bought from someone in Luxembourg or Ireland.

I suppose this could actually be useful to me in selling articles to French magazines as the rate for writers and composers is 20% here but only 5.5% there so I'd now presumably add the lower amount to my invoices.

(My embolding)

 

Ireland has (used to have?*) a higher rate of VAT than the UK and some software purchased from there was more expensive.

 

Keith

 

*Standard rate is currently 23%, has never been below 20% since 1976

[Edwin_m]

All slightly weird. I assume the aim is to prevent companies selling goods that have no physical existence such as software from artifically choosing the lowest VAT territory and claiming that all their sales are from there. You see this often when buying ostensibly from a UK supplier but finding that you "really" bought from someone in Luxembourg or Ireland.

I suppose this could actually be useful to me in selling articles to French magazines as the rate for writers and composers is 20% here but only 5.5% there so I'd now presumably add the lower amount to my invoices.

It's actually that if the company was based in Luxembourg for tax purposes it could charge their VAT rate (generally 17% but 3% for some items including e-books) for sales across the EU.  Now they will have to charge the VAT rate applicable to the buyer's country.  This removes the arguably unfair advantage these companies (generally multmationals) have over domestic suppliers including bricks-and-mortar shops.  There is still an issue with multinationals arranging their internal organisations so the profits appear in countries with low rates of corporation tax.  George Osborne promised in the Autumn Statement to deal with this by imposing a new tax on what HMRC considers to be unreasonable charges for company internal transactions where the British operation pays other divisions for services such as the use of intellectual property.  I suspect companies will quickly find ways round this. 

[BG John]

Much of the action on this is centred around this Facebook group, and some good progress has been made, but nowhere near enough. The big problem for sales between EU countries is the evidence you have to collect to prove where the customer is. And it's almost certain that if you only sell in the UK, you have to collect and keep the evidence too, to prove you didn't sell to other countries. No one has mentioned model railways there yet, as it's been mostly around knitting patterns and similar stuff, and musicians are now joining in. As far as sales into the EU from outside go, they're supposed to have been doing it for some years, but almost no one actually has! A lot of people are giving up their business, or stopping digital sales.

https://www.facebook.com/groups/DigitalVAT2015

 

There's a survey being done to collect information from as many small traders throughout the world as possible, to prove that there are thousands of tiny businesses that no one bothered to ask before dumping this on them.

http://euvataction.org/take-action-now/complete-the-survey/

[Pacific231G]

It's actually that if the company was based in Luxembourg for tax purposes it could charge their VAT rate (generally 17% but 3% for some items including e-books) for sales across the EU.  Now they will have to charge the VAT rate applicable to the buyer's country.  This removes the arguably unfair advantage these companies (generally multmationals) have over domestic suppliers including bricks-and-mortar shops.  There is still an issue with multinationals arranging their internal organisations so the profits appear in countries with low rates of corporation tax.  George Osborne promised in the Autumn Statement to deal with this by imposing a new tax on what HMRC considers to be unreasonable charges for company internal transactions where the British operation pays other divisions for services such as the use of intellectual property.  I suspect companies will quickly find ways round this. 

Oh what a fool I was not to train as a lawyer !!

The word that seems to be missing from all this is threshold.

[The Stationmaster]

It's actually that if the company was based in Luxembourg for tax purposes it could charge their VAT rate (generally 17% but 3% for some items including e-books) for sales across the EU.  Now they will have to charge the VAT rate applicable to the buyer's country.  This removes the arguably unfair advantage these companies (generally multmationals) have over domestic suppliers including bricks-and-mortar shops.  There is still an issue with multinationals arranging their internal organisations so the profits appear in countries with low rates of corporation tax.  George Osborne promised in the Autumn Statement to deal with this by imposing a new tax on what HMRC considers to be unreasonable charges for company internal transactions where the British operation pays other divisions for services such as the use of intellectual property.  I suspect companies will quickly find ways round this. 

So basically it brings (or appears to bring) such sales sort of into line with the sales of tangible goods within the EU where once the seller crosses the threshold all goods are taxed at the VAT rate applicable in the country to which they are sold.  Up to that limit they are subject to VAT at the local rate applicable in the country from which they are sold - assuming I've correctly understood the process.

[BG John]

It's supposed to create a level playing field, and so is kind of a good idea. It's the effect on tiny suppliers that's the problem, as no one in the EU or UK government seemed to notice that there are thousands of small one person businesses operating from home, who are way under the VAT registration threshold in the UK. And our wonderful government seem to have gold plated the implementation of the rules as well! It's being extended to products later, so cross border, sales of downloads and physical products from the small suppliers that make up a big part of railway modelling will be affected, and may well disappear.

[The Stationmaster]

It's supposed to create a level playing field, and so is kind of a good idea. It's the effect on tiny suppliers that's the problem, as no one in the EU or UK government seemed to notice that there are thousands of small one person businesses operating from home, who are way under the VAT registration threshold in the UK. And our wonderful government seem to have gold plated the implementation of the rules as well! It's being extended to products later, so cross border, sales of downloads and physical products from the small suppliers that make up a big part of railway modelling will be affected, and may well disappear.

Well they might disappear if they are price sensitive but it is surely no problem to add the national VAT rate (especially the UK rate) to any sale?  In many respects I suppose it might not matter if they are below the VAT threshold but the tax itself still applies as I understand things and should be duly be added, collected, and paid?

[BG John]

It's collecting the data that's required to prove where the buyer is located, and storing it for 10 years that's a big part of the problem. Then charging the VAT under the rules and rates of the country you're selling into. Sellers either have to register for VAT in each EU country they sell into, or register for VAT in the UK and sign up for MOSS, then account for the VAT on sales to other EU countries, so HMRC can pass it on to the relevant country. And they need to get this right. Registering for VAT in the UK doesn't mean you have to charge UK customers VAT if you're under the registration threshold though. You just have to complete a nill UK VAT return, plus your MOSS return for EU sales, and pay the few pence VAT on the £1 item that is your only non UK sale for the quarter! Nothing to it really, if you're an accountant, or have a paperwork fetish!!!!!

 

Of course this could change before it's introduced, as the weird UK VAT registration is a new thing brought about by recent campaigning. Before that the choice was to register in each EU country you make your £1 sale in, or become fully VAT registered and charge all your UK customers VAT too. The whole point of having a threshold was to make life easier for very small and startup businesses.

 

Or just ignore the whole thing and hope it goes away. Except that all the EU VAT authorities will be trawling the internet searching for miscreants defrauding them of less money than it will cost to punish you.

[frobisher]

Before that the choice was to register in each EU country you make your £1 sale in, or become fully VAT registered and charge all your UK customers VAT too.

Or not to make sales to the rest of the EU which is the easiest solution for dealing with the situation you describe...

[The Stationmaster]

It's collecting the data that's required to prove where the buyer is located, and storing it for 10 years that's a big part of the problem. Then charging the VAT under the rules and rates of the country you're selling into. Sellers either have to register for VAT in each EU country they sell into, or register for VAT in the UK and sign up for MOSS, then account for the VAT on sales to other EU countries, so HMRC can pass it on to the relevant country. And they need to get this right. Registering for VAT in the UK doesn't mean you have to charge UK customers VAT if you're under the registration threshold though. You just have to complete a nill UK VAT return, plus your MOSS return for EU sales, and pay the few pence VAT on the £1 item that is your only non UK sale for the quarter! Nothing to it really, if you're an accountant, or have a paperwork fetish!!!!!

 

Of course this could change before it's introduced, as the weird UK VAT registration is a new thing brought about by recent campaigning. Before that the choice was to register in each EU country you make your £1 sale in, or become fully VAT registered and charge all your UK customers VAT too. The whole point of having a threshold was to make life easier for very small and startup businesses.

 

Or just ignore the whole thing and hope it goes away. Except that all the EU VAT authorities will be trawling the internet searching for miscreants defrauding them of less money than it will cost to punish you.

I read somewhere that the £70,000 threshold applies to sales to other EU countries, i.e. you don't have to start charging their VAT rates until your total sales pass that threshold - is that correct or not?

[BG John]

Or not to make sales to the rest of the EU which is the easiest solution for dealing with the situation you describe...

But you almost certainly need to collect two pieces of evidence, plus a third in case they don't agree, from the prescribed list, to prove that your sales were in the UK. Otherwise some foreign government could send HMRC round to sort you out if they think you've sold something in their country. And you have to keep the records for 10 years. And it could also be illegal not to sell to other countries, but no one seems clear on that yet!

[BG John]

I read somewhere that the £70,000 threshold applies to sales to other EU countries, i.e. you don't have to start charging their VAT rates until your total sales pass that threshold - is that correct or not?

It's £81,000 for VAT registration in the UK, but VAT applies to all sales to other EU countries, with no threshold. You can now register for UK VAT, and tick a box to say you're just doing it for the EU VAT stuff. Then you send in a nill return for your UK sales, that you don't have to charge VAT on, plus a MOSS return for your VATable sales to other EU countries. The UK VAT threshold then applies only to UK sales.

 

At least that's the current position, but there are still 17 days to go, so it might change again!

[meil]

Question? just how many "small suppliers" in the model railway field supply "Digital Services"? Because these regs only apply to "Digital Services".

 

If you are going to register for VAT you might as well register for UK as well. That way you get to reclaim the VAT that you pay.

 

It is not correct that small suppliers don't charge VAT. They do (and it's buried in there prices) because they have to pass on the VAT that they have been charged and are unable to reclaim (because they are not VAT registered). The only VAT they don't charge is the VAT on their profit.