EU VAT Changes Are Doing My Head In – Chris Longmuir
Apologies for taking a UK perspective, although the EU VAT
rules apply to everyone who sells electronic downloads to the EU, irrespective
of where the seller lives, and I’m not too sure that sellers in the US,
Australia, or anywhere else in the world have woken up to these changes yet.
Let’s get one thing clear from the start. I’m a writer, I’m
not an accountant, and I’m not a tax expert, plus it takes a major effort to
supply accounts to my accountant when that time of year rolls round again. As
for doing a self-assessment tax form, that is beyond me. But my accountant is a
lovely man and he does all that for me, after I’ve supplied the accounts, that
is. So, why on earth would I want to do a post on the new EU VAT rules on
electronic downloads?
Well, I think I’m reasonably aware of what is happening in
the writerly world of writing, publishing, and selling ebooks and paperbacks.
So, when the first rumbles of this new VAT system reared its head as recently
as November 2014, I sat up and took notice. Big business may have been alerted
to what was going on in respect of these changes, but it was glaringly obvious
that all the micro-businesses and individual sellers didn’t have a clue.
I had assumed that other writers as well as those involved
with electronic downloads in any shape or form, would have noticed as well, but
over the past few days I’ve seen comments on social media from writers who are
mystified because the prices of their ebooks have increased. And, of course,
big bad Amazon is getting the blame! But irrespective of how you view Amazon,
this time it isn’t their fault. It’s the EU to blame for implementing VAT
changes on all electronic downloads. This includes ebooks, software, music,
apps, etc. Here is a list provided by HM Customs & Excise:-
“The rule change applies to ‘e-services’
that are ‘electronically supplied’ and includes things like:
- supplies of images or text, such as photos, screensavers, e-books and other digitised documents eg, pdf files
- supplies of music, films and games, including games of chance and gambling games, and of programmes on demand
- online magazines
- website supply or web hosting services
- distance maintenance of programmes and equipment
- supplies of software and software updates
- advertising space on a website”
However, because I’m a writer, I’m mainly concerned with
ebooks, although anything I say can be equally applied to anything else on that
list. But, a note of caution, I’m no expert, I’m just giving you my interpretation
and understanding of the situation. By all means check things out for yourself.
One thing I
do know is that the new EU VAT regulations have caused a storm on social media.
Do a Google search for EU VAT and it should pull up loads of information.
The changes in
force are that the VAT rate is now dependent on the buyer's country instead of
the seller's, and there are 28 different VAT rates, maybe more, in the EU. So
you have to pay VAT according to where your buyer lives. It is now 20% in the
UK instead of the 3% (Luxembourg rate), but the EU countries vary between 4%
and 27%. This is something to be aware of if you sell directly to the buyer
through your website etc. You will be liable for the VAT due and you are
responsible for charging the customer the relevant VAT, and you are also
responsible for paying the VAT charged to the appropriate Government, and the
rules state you have to keep all records of these purchases for 10 years.
However,
these changes only apply if you sell to the buyer direct, you're OK as long as
you sell through Amazon, Smashwords, Apple, or any similar platform, because
they are the sellers and therefore liable for the VAT collection and payments,
and as long as you sell through them you aren’t liable. I know one thing. I
won't be selling directly to the customer any time soon. Too much hassle.
I found this information from a European Commission document
provided by the Taxation and Customs Union and I thought it might interest you
as well.
“From 1 January 2015, telecommunications, broadcasting and electronic services will always be taxed in the country where the customer belongs – regardless of whether the customer is a business or consumer – regardless of whether the supplier is based in the EU or outside”Example provided:
“Must charge VAT in the EU country where the customer belongs (not where the business is based).Example A Polish customer downloading an App on his mobile phone from a Finnish supplier. The Finnish company must charge the customer Polish VAT.”
The same example could apply to a US trader selling to a
customer in the EU, all you have to do is change the wording from Finnish
supplier to US supplier.
Not only that, but I understand that the EU VAT rules will
extend to physical goods in 2016 and will therefore affect paper books in the
countries that apply VAT to them. So far paper books are zero rated for VAT in
the UK, but that is not the case in all of the EU countries, although I haven’t
yet had time to identify a list of the countries that do charge VAT. I’ll think
about that later.
Coming back to the differing VAT rates. They range from 4%
to 27% depending on which country your buyer resides in. Here are a few
examples:-
To make matters worse,
some countries have different VAT rates for electronic goods or services eg
Italy’s VAT rates for ebooks depends on whether or not the ebook has an ISBN.
The ebook with the ISBN will require a VAT rate of 4%, but the ebook without the
ISBN has a VAT rate of 22%.
UK 20%,
Ireland 23%,
Hungary 27%,
Sweden 25%.
However, under EU directives there is scope for some
exemptions, for example e-learning, but this does not apply over the board, and
if one country decides to provide some exemptions, this will not necessarily apply
to other EU countries.
What a confusing mess, no wonder the government’s solution
to working the system VATMOSS (VAT Mini One Stop Shop), has been nicknamed
VATMESS. As far as I can tell if you sell directly and don’t register with
VATMOSS, then you will have to complete VAT returns for every country you trade
with. You can avoid this if you register with VATMOSS which provides a
centralised system to do this, however, as far as I can tell it evens out the
tax rates, although I may be wrong. Oh, and did I forget to mention, that every
sale counts, no matter how small, there is no threshold window to give the
option not to comply.
Then there’s the little matter of
penalties for non-compliance
- failure to register or late registration;
- non-payment or late payment of VAT;
- non-submission or late submission of VAT returns;
- incomplete or incorrect VAT returns; and
- failure to comply with invoicing or accounting obligations.
The Facebook EU VAT Action Campaign
Group has proved useful to me in keeping up to date with what is happening
as it happens, because there is a lot of lobbying going on to bring the dilemma
facing small and individual traders to the notice of the UK government and the
EU. As a result of following them I have become aware of some ways round the
legislation.
For example, under HMRCs interpretation of the rules, if you
sell ebooks or any other download from your website by using a ‘Click to Download’
button, then you have a responsibility to charge your customer VAT, and pass
this portion of the sale on to the appropriate government body, or VATMOSS.
However, if your customer contacts you by email, and you supply the file as an
email attachment (provided this is not automated), or on a CD or DVD and send
by post, then it is no longer a digital download, and therefore not liable for
VAT. But bear in mind the plan to extend the regulations to cover physical
goods in 2016. When this comes into force, this workaround will no longer be
legal. However, there is no guarantee that other EU countries will interpret
the rules in the same way.
The ultimate aim of the group, as far as I can see, is to
continue lobbying for a minimum threshhold which would have to be reached
before a small or individual trader comes under the scope of the rules. At the
moment there is no minimum threshold, so if you sell a book for £1, VAT is
chargeable.
If you find the the new EU VAT rules concerning, I would
recommend that you join the EU VAT Action Campaign
Group, and also sign the petition calling for the suspension of the rules.
This page will take you to a link for the petition http://euvataction.org/take-action-now/sign-the-petition/
You can also check out the EU VAT Action
web site. Lots of good information there.
In the meantime, to prevent my head from bursting, I have
resolved never to sell digital downloads from my website or anywhere else. I
will continue to sell on Amazon, Apple, Kobo, Nook, and Smashwords, and let
them take the pain. But I can’t help feeling it’s ironic that legislation intended
to prevent the mega companies like Amazon and Apple charging the lowest rate of
VAT they could, will have no effect on them apart from pushing prices up. That
is because VAT is paid by the consumer, not the company, who only collect it on
behalf of the respective governments. Furthermore, it is driving the small
companies and individual traders into the arms of these companies instead of
building their own businesses in their own countries.
It’s a mad, mad world.
Chris Longmuir
Amazon
Apple iBooks
Comments
One interesting thing - I know there has been a lot of fairly alarmist discussion along the lines that we are not 'allowed' to refuse to sell to the rest of the EU because it is 'discriminatory' - but I asked a corporate lawyer friend about this - she has some experience of cross border cases as well - and her very robust advice was that if there is an 'objective' reason why you won't trade with another country, even within the EU, you can't be accused of discrimination. As she said, 'what more objective than finding it complicated, expensive and a threat to your business?' So if you are selling from your own website, you're within your rights to restrict your sales to the UK where, so HMRC says, the normal threshold applies. The physical goods thing is very alarming though. God knows what would happen to all those small traders on eBay - but once again, the effect would be that everyone, EU wide, would flatly refuse to sell outside their own country. So what is the point of the EU? (And I've always pretty much been a supporter!)
Nobody, after reading this, could claim that it is 'a tax on Amazon.'
What amazes me is that no one, while these laws were trundling towards acceptance, raised a hand and said, "Er - " And pointed out the obvious - that it would have no effect on Amazon whatsoever, while punishing EU consumers and traders.
If someone did, they were ignored or shouted down.
Doesn't say a lot for our officer class, does it? We may be pussy-cats rather than lions, but we're certainly being led by internet-ignorant donkeys. (I feel I should apologise to donkeys.)