Tuesday, 28 July 2015

Digital Downloads & EU VAT Legislation

This is all heed nipping boring stuff and is just making people who run a micro business which sells digital downloads question weather it's worth all the hassle to continue selling digital downloads! I am now questioning if I should or should not add my downloads to my website when I get my new online shop up and running.

On 1st January 2015 a new EU legislation came into force which affects businesses that sell digital services, such as e-books, online courses, apps, or downloads to other EU countries. VAT is now charged in the country where the products are bought, as opposed to where the seller is located.

Now I thought this is ok it won't apply to me because my revenue is very very very much below £81,000 which is the UK threshold for VAT. Unfortunately for digital goods there is no threshold, I have to collect VAT from the first £1 and every EU country has its own VAT rates ranging from 8% to 27%.

Complicated? Yeah!

I'll try and simplify this

I have a digital download in my shop priced at £1 a customer living in Switzerland would have to pay £1.08 (Swiss VAT 8%) for this.
The same £1 item is purchased by a customer living in Hungary, who would have to pay £1.27 (Hungary VAT 27%).
I would have to register for the VAT MOSS online service so I could pay any VAT that I have collected quarterly. Now if the above examples were the only EU sales that I had in a quarter I'd be sending 8p + 27p a total of just 35p to HMRC who would then send 8p to Switzerland and 27p to Hungary.
I would also need a postal address and IP address for every customer which I must keep a record of for 10 years. This all sounds really ridiculous and a lot of work for such small amounts of money.

You even need to collect the VAT if you link to online content or a download sent by a manual email! But how will they know?
Yet it is ok for me to charge just £1 (as in above examples) with no VAT and send a manual email with the digital file attached :)

So EU customers feel free to contact me if you would like to purchase a printable download and I will PayPay invoice you for cost of item minus VAT and will email the file to you within 24hrs, this in fact is how it used to be done before Etsy let us store our download files on their servers.

If I was to go ahead and add downloads to my online shop on my website then I would also need to look into software that would work out all the different VAT rates for my EU customers.

I realise that this legislation was put in place to catch the big fish like Amazon, Apple etc. but it's all the little fish that are being caught and drowned! I don't think it was really thought through.

Even with my little shop being on Etsy this still affects me, yet Etsy have implemented a system that works out and adds the VAT to my downloads for EU customers. As Etsy is based in the USA though my UK customers get charged VAT too, which they shouldn't as the £81,000 threshold does apply in my own country!

Still confusing!

Then theres this other thing thats annoying me...... If my EU customer pays with PayPal then PayPal charge me fees on total amount that gets paid into my account...ie. cost of item plus the VAT. Then when Etsy sends me my monthly bill which will include any VAT that I have in my PayPal account, they charge me the full VAT thus I'm out of pocket here!!!

This legislation affects so many micro businesses around the world and because of this some would rather not sell to EU customers.

So I'd like to say Thank You to the barmy Eurocrats for once again overly complicating something and putting yet another hurdle in the way of ordinay people trying to eek out a living and build a little business.

***Disclaimer: I do not claim to know everything or understand everything about EU VAT Legislation, this is just my very simple take on it. 

A few links below, but do a search there are many people and reports about this subject online.
VAT on Digital Services in EU
facebook page Digital VAT 2015  with helpful discussions
The Guardian
The Telegraph

So after all that heed nippy stuff lets finish with a little something that made me smile :)
Last week I went to the Falls of Feugh near Banchory and there is so much love happening there :)
Can you feel the love?

Love locks on the bridge

I wonder if Trish and Brian are locals


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