According to HM Revenue & Customs, changes in EU legislation effective 1st January 2015 will require anyone trading digital products across Europe, such as ebooks (fiction and non-fiction), craft patterns, artwork, music, software (the list is goes on and on), to charge VAT at the rate applicable in the customer’s country rather than their own home base.
Such digital products as ebooks, training and self-help manuals or guides, craft patterns, digital art, photograph or music files are now defined as ‘services’ on an equal footing with cloud data storage, online marketplaces, web hosting and online games. Not the process of selling ebooks and music etc. The actual digital file itself is now a ‘service’ even though in most cases that sale will be a simple one-off transaction.
There are national VAT registration thresholds set by each country in place for anyone trading in physical products, to help reduce the administrative burden on companies, and to encourage them to start trading across Europe. If a foreign company is selling below these thresholds, it does not need to register.
There are no thresholds for anyone trading in digital services. This means micro-businesses selling ebooks, craft patterns, art etc must either register individually for VAT in 28 member nations each with various range of VAT rates, or use HMRC’s own VATMOSS portal which requires VAT registration for all businesses, regardless of turnover.
It’s impossible to see how this relates to the EU Parliament’s avowed intention of creating a Digital Single Market, as outlined by Vice President Ansip in Strasbourg, 26th November 2014, advocating “a truly connected digital single market. A market where every consumer is able to enjoy digital content and services – wherever they are in the EU, including government services. It means every company should be able to share and sell its wares to a market of 500 million, using seamless online channels.”
Most micro-businesses will not be able to satisfy the data capture and storage requirements imposed by HMRC’s proposed new system, meaning they will have to abandon direct sales from their own websites entirely.
HMRC say micro-businesses using a 3rd party marketplace need not worry as those 3rd parties will be responsible for VAT compliance and collecting the relevant data to identify customer locations which must be safely stored for 10 years.
Some 3rd party marketplaces are disputing this. Others have yet to make any statement. This needs urgent clarification and binding confirmation as to which marketplaces and payment systems will be deemed compliant by HMRC.
Current advice from HMRC is confused and contradictory.
Meantime, the UK Government’s own Digital Service Assessment concluded on 3rd October 2014 that the VATMOSS system was not fit for use.
It’s become apparent that HMRC have been catastrophically unaware of just how many people trade in electronic products on a small scale. Nevertheless this commercial activity is vital both to those running micro-businesses and to the overall economy.
Collective action will make lobbying on this issue much more effective. If you and your business are affected, please add your name.