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

[BG John]

Downloadable PDFs of building kits would be included, if the buying process is automated. Not mentioning names, as there are also similar rules for suppliers outside the EU who sell into the EU, and I'm currently buying various buildings from one of them!

 

It only covers digital products from 1st January, but the plan is to extend it to physical products ASAP, possibly in 2016. And this is why the small business community as a whole needs to work together on this. Saying "it doesn't affect me" won't help when it's established in one area and they extend it to you.

 

Non registered suppliers do effectively pass on VAT on their purchases to their customers, but only on materials, and not on their labour and profit elements of their products, so the VAT content of the sales price is much lower than if they were VAT registered.

[frobisher]

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.

Incorrect. In that instance, the supplier is not charging VAT but has been previously charged VAT as part of his supply costs. They are passing on that cost, but they are categorically not charging VAT on any level.

[brushman47544]

Silly question... how does the supplier know where you are? Does he/she have to rely on you providing a name and address, even if nothing is actually sent to you? Or is it done by IP address of the computer being used, or perhaps where the payment card is registered (I live in Portugal but use a UK bank card)?

 

And what happens if as a buyer I go abroad on holiday and while away and connected to WiFi I buy a downloadable kit, but only print it when I return "home"?

 

A laudable idea but I have real sympathy for the suppliers who will have to apply the rules.

[BG John]

IP address and home address are the two most practical ones from the list of acceptable evidence. However, anyone who knows about these things would have told the morons who wrote the legislation that an IP address isn't an accurate guide to location, and many customers will refuse to buy if they have to give their address for something that won't need the postman to find them. I get the impression that the interpretation of the customer's location varies between countries too. I just hope the EU never get involved in organising social events in a beer manufacturing establishment!

[billbedford]

All these problems look like a good reason to have unified VAT rates throughout the EU. 

 

.....just saying...

[BG John]

But each country would still want their pound of flesh, or in the case of digital downloads, few pence of it. So you still need to know where the customer is.

[Edwin_m]

But each country would still want their pound of flesh, or in the case of digital downloads, few pence of it. So you still need to know where the customer is.

If the VAT rate was uniform then they could go back to the old system of the business's host country collecting and keeping their VAT - just as happens with a physical purchase in a bricks-and-mortar shop.  Big business couldn't evade the charges by basing itself in a low-VAT country so the reason for this new system would disappear. 

[BG John]

Could go back, or would go back? The UK has lots of exemptions on things that are VATable in other countries, like food and railway books.

[Crosland]

It only covers digital products from 1st January, but the plan is to extend it to physical products ASAP, possibly in 2016.

Can anyone supply a link to more information on this? The EU regulation behind the impending change covers only electronically supplied products, and I cannot find reference to any other regulations that would widen the scope.

 

Andrew

[BG John]

One of the people involved in EU VAT Action, who are in face to face discussions with HMRC, has just replied to my request for a link: "We were told, face-to-face, by the Director General of UK HMRC on December 4th and I have seen it written somewhere in EU guidance notes. However, given the stink we're all kicking up at the mo - which has taken the decision-makers by surprise, then I wouldn't bet my house on any specific timing any more."

http://euvataction.org/

[BG John]

And an extract from British Tax Review:

http://www.slideshare.net/slideshow/embed_code/40681204

[BG John]

Official stuff from HMRC:

https://www.gov.uk/government/publications/vat-information-sheet-0814-vat-place-of-supply-of-servicesmini-one-stop-shop/vat-information-sheet-0814-vat-place-of-supply-of-servicesmini-one-stop-shop

"Q24 Are there any thoughts of expanding MOSS to non-BTE services?

A24 If MOSS is successfully implemented across the EU from 1 January 2015, it is probable the system will be expanded on an incremental basis in the coming years. The next step is likely to be to propose expanding the scope of the system to cover other B2C supplies of goods and services."

 

And this from an accountant who knows about these things:

http://www.larking-gowen.co.uk/blog/warning-tax-nirvana-approaching-fast/

[ian]

And this from an accountant who knows about these things:

http://www.larking-gowen.co.uk/blog/warning-tax-nirvana-approaching-fast/

 

Deep joy!

 

I think I'll start my closing down sale now...

[BG John]

Deep joy!

 

I think I'll start my closing down sale now...

Join the campaign Ian. They've made amazing progress with digital products/services in a very short time, and more was announced today, although it's only a temporary fix while further changes are negotiated. They're trying to get businesses in all EU countries involved, and moving on to physical products. Many sellers of digital products do physical ones too, and the ways round digital sales are only temporary until the scope is extended.

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

http://euvataction.org/

[raymw]

There are a number of individuals who sell stuff, as a part time business. Many do not pay income tax on their earnings (hiding behind ebay anonymity, and the like). Customs and excise(VAT) merged with the other income tax departments a few years ago. Customs and excise have far wider powers than any other gov. department. All UK tax collection depts. are understaffed, and the idea is that vat registration will mean that the income tax guys will be able to see who may have to pay more income tax than had previously been declared, hopefully catching a few who will be moved into the 40% band. This is the aim, more with physical items, not just virtual.

 

The main thrust, if it can be called a thrust, will be to the mid range businesses, and small corporates, the bigger fish in the net, but occasionally a tiddler will be examined, just for the sake of it. It is of no consequence the extra work, that may or not be required by the tiddler, since they most likely have been evading paying their previous taxes.

 

Hopefully, this will mean in future that I  don't have to wait in the post office queue while the person in front unloads a sack of tat to be individually weighed.

[Crosland]

There are a number of individuals who sell stuff, as a part time business. Many do not pay income tax on their earnings (hiding behind ebay anonymity, and the like). Customs and excise(VAT) merged with the other income tax departments a few years ago. Customs and excise have far wider powers than any other gov. department. All UK tax collection depts. are understaffed, and the idea is that vat registration will mean that the income tax guys will be able to see who may have to pay more income tax than had previously been declared, hopefully catching a few who will be moved into the 40% band. This is the aim, more with physical items, not just virtual.

 

It's not about catching tax dodgers at all. Only those selling from the UK to EU will need to register. The aim is to stop companies setting up in low VAT rate countries and selling into their real markets which have higher rate of VAT. It was a law of unintended consequences that it affects many micro businesses in the UK. Some EU countries already have much lower VAT thresholds (even 0) so it may be a non event for anyone trading from those countries as they will be registered anyway. The UK is particularly hard hit due to the extent to which we have embraced e-commerce along with our traditional "nation of shopkeepers" attitude.

 

Andrew

[raymw]

It is not unintended consequences. They have cast a net, in the hope of catching everything. Just wait and see.

 

It will of course, be changed, if the collectors are overwhelmed with checking small returns, but the onus is on the individual to make the returns and payments, so not much effort required by the VAT office. Maybe they won't get round to doing inspections of the really small traders, but it is a source of income, nonetheless. I am guessing, but most likely they will end up with a much lower threshold than at present, but in the meantime...

 

Making a quarterly or annual VAT return is not difficult, if you run a business correctly, but will be for those who do not keep records. 

 

A number of small traders, many of the the 'part timers', are not 'in the system', but they will be soon. It will get very interesting when it is extended to all products.

[Crosland]

You seem to be missing the point that anyone who sells only in the UK is unaffected by the new regulations. The "net" will not catch them.

 

The only way to catch everything/everyone would be to set the UK VAT threshold to £0 turnover.

 

Andrew

[BG John]

But what it does do is catch out people who sell online and make an occasional sale to another EU country. You sell downloadable print it yourself building kits of UK prototypes, that only appeal to UK modellers, but once in a blue moon someone in Europe may buy one. They pay their £1.99, and you owe somewhere around 40p (depending on the country the buyer is based in) to that country's government.

 

To deal with this, you need to collect 2 pieces of evidence that is acceptable to HMRC, for EVERY sale you make, so you can prove that 99.9999999% of your sales were within the UK. This evidence is technically difficult to collect, and not certain to be accurate. You probably scare off some of your customers by asking for their postal address that they don't see any reason to give you.

 

When you discover this one EU sale, you have to register for UK VAT, but say you're doing this so you can register for MOSS. Then you register for MOSS. Then and forever more, you have to send in two VAT returns each quarter. Your UK VAT return will always be nil, as you don't have to charge UK VAT if your turnover is under £81k, and your MOSS return for this quarter will be for the 40p you have to pay, but in future quarters may be nil too.

 

It does nothing to catch people who aren't registered in the system, just causes extra work and expense for those who are.

[martin_wynne]

Your UK VAT return will always be nil, as you don't have to charge UK VAT if your turnover is under £81k

 

If you are registered for VAT you have to charge UK VAT, regardless of your turnover.

 

You don't have to register below the limit if you don't want to, but if you do register you have to charge VAT on all applicable sales.

[Taz]

I don't believe that is the case if you are registering just for this.

If you are registering just for MOSS then you don't need to charge VAT for uk sales unless you hit the uk threshold.

[BG John]

If you are registered for VAT you have to charge UK VAT, regardless of your turnover.

 

You don't have to register below the limit if you don't want to, but if you do register you have to charge VAT on all applicable sales.

This is a weird concession by HMRC to allow businesses under the threshold to register for MOSS, won by a lot of hard campaigning in recent weeks.

[raymw]

Currently, it is the service aspect that they seem to be after. Afaik, you can send the info. on a cd, but ordered via email, avoiding registration and cost of VAT. Some definitions here http://www.revenue.ie/en/tax/vat/place-supply-rules.pdf  If you have some auto system, for downloading software/ payments, then it may be easiest to include a field for the customer to insert the name of their country, unless you can pick up on their local isp details, if they lie, then I don't think that is your problem.

 

Let's hope VAT inspectors don't play trains, and if they do they are not fussy about regions/eras/rivets...  *

 

VAT is a two way thing - you can claim it back on inputs - not sure how that works with MOSS, but if it does, you could make money on the deal, if you think about it. Also, it would be unfair that a guy in France, say, would have to pay more than one in the UK, so you may decide to raise the UK base price to match the European base +VAT.

 

A Prosperous and a Happy New Year, to one and all,

 

Best wishes,

Ray

 

* When I moved home, about 25yrs ago, into a different regional VAT jurisdiction,  a guy came out within the first month or two for an inspection. I had my business categorised under 'Model Engineering', and they drew straws to see who visited, because they thought it was more like 'models' and 'cosmetic engineering'.