New EU VAT regulation for 2015 and eJunkie

[sgt_bilko]

The chief problem here is that most EU countries already have a zero VAT threshold for businesses of all types and the UK has by far the highest threshold at £81K. Now from the 1st of January small businesses in the UK like mine that sell digital downloads will be singled out with a zero threshold but over time I imagine that will be extended to other sectors. That VAT will then apply to all our dealings.



Bureaucrats don't understand business and frankly this measure illustrates that point perfectly. The UK has produced more jobs in the last 4 years than all the other 27 countries of the EU put together and a large part of that is how easy you make it for small companies to flourish, so this is an incredibly backwards step.



I was VAT registered before and the irony is that selling eBooks to customers in the US or Australia was simple but once VAT was applied to EU customers those sales plunged and to make matters worse the accounting was a pain in the neck because PayPal levies a different transaction charge on the seller that varies according to the country of the buyer, so I had to look at every single transaction one by one not only to tally the figures but also compile the EC Sales list. It was very time consuming but a walk in the park compared to what is coming now...



The way I see it the only realistic way forward is to find a way that allows us to remain not VAT registered. Indeed an accountant who is well versed in international trade said that registering for VAT under this new system would be like entering a black hole that never ended.



At the moment I don't let customers have the digital download immediately. Instead e-junkie sends them an email with the download link. By the time e-junkie sends out that email (post payment) they already know the location of the buyer, so non EU customers could get their email with a link immediately, while EU customers could receive an email telling them that the download would have to be manually authorised and then give them some kind of time estimate within X hours. That should be enough to see us clear of this mess. Time is running short though and we really seem some input here from e-junkie.

[stevec]

MP and all MEPs contacted. Let's see what sort of response we get from them.

[sgt_bilko]

Well done SteveC. Hopefully there will also be people in other countries protesting against this but I can only conclude that the government kept it deliberately quiet until this week so there wasn't enough time to stop it.

[sgt_bilko]

Just as a thought we could have a short one line note inside the shopping cart window saying that downloads within the EU would have to be manually authorised.



Perhaps there will be some kind of reprieve, though I view this as unlikely. In the meanwhile we need to make contingency plans.

[stevec]

I'm talking to people on another forum at Site Build It, where I built my website, and they are exploring this option, not looked at details yet but if ejunkie can't come up with a fix this could be an option although the commission looks expensive,but there again if they are saving me doing the VAT administration maybe it's worth it.



http://info.fastspring.com/blog/2015-vat-changes

[sgt_bilko]

I've bookmarked it for reference but it's not cheap. This new legislation is going to affect all kinds of different sectors that probably don't think they are included, such as many photographers including amateurs selling digital images direct through portals but billing themselves. The knock on effect with lost business to all sorts of companies could be massive.

[jean]

Sgt_BilkoThe chief problem here is that most EU countries already have a zero VAT threshold for businesses of all types and the UK has by far the highest threshold at £81K.



My understand is that all EU countries have a minimum of €35,000 for business that sell goods to their residents over the internet - distance selling? I believe it is zero if you are a foreign business that bases themselves in that country or sells goods another way?



http://www.vatlive.com/eu-vat-rules/distance-selling-eu-vat-thresholds/



The issue here is that digitally delivered items are now having their classification changed to e-services/ services rather than goods and for them the EU vat thresholds will now be zero.

[jimmyjjohn]

I'd like to add to Elmar's post: In many EU countries it's mandatory by law to show the customer the end price incl. tax. This means, we would have to know the country of the buyer before displaying the price. Since this is mostly impossible, this leads to the idea of have the same Gross Price (inkl. Tax) for all European customers and the net price will then differ according to the country. This would be the only way to be really safe in legal terms.



Thanks!!

http://www.petvy.in

[sgt_bilko]

This is true jimmyjjohn but if we pay the customer's VAT ourselves it probably won't be viable to continue trading, especially if the majority of your sales come through affiliates who will all want to continue being paid as usual. There is only so much you can take out of a pie before there is nothing left to eat.

[jimmyjjohn]

Thanks

[sgt_bilko]

None of this makes me particularly happy and there is no silver bullet unless e-junkie has a cunning solution in the wings that they aren't yet sharing for some reason. It's all a huge pain in the neck and and a massive distraction from trying to earn a living.

[arpeggio]

How much information is required from the customer before purchase concerns me. Up till now with eJunkie things are easy going through PayPal.



I read on the Financial Times article that Google Play have arranged for this new law recently. On Google Play, if you click "buy" on a product, it then has the option "add a paypal account", when you click that it then asks for the name and address.



So going by that I'm guessing that's the information required by this law? I'm glad it's not the phone number too, that might be even more off-putting. I get enough spammy phone calls myself so I think customers would be wary of giving their telephone number over if buying something online, I know I am.



On a long term view I think this (in principal, NOT implementation) was inevitable? what with the more international trade, and there being no physical issues for the increasing market of digital commerce. Otherwise you would end up with every company based in Luxembourg reaping from other economies and giving nothing in return. Yet at the same time it doesn't half pose quandary with regards to E-junkieGuru's earlier comment about "taxation without representation" which I guess could have been better dealt with in the implementation of this law.



I'm not saying the law good at all though, it's far too much too soon. There should be a threshold and implementation should have been much better, such as an international EU flat VAT rate for example. I signed the petition.



Can anyone confirm or pass a link as to how much information a business is required to obtain from the customer? I found it hard to find and official government sources.

[sgt_bilko]

This link tells you pretty much all you need to know and why this won't work http://www.clarejosa.com/articles/from-passion-to-purpose/what-you-need-to-know-if-youre-relying-on-your-payment-processor-to-dig-you-out-of-the-vat-moss-mess/



There is one thing though that nobody has mentioned that strikes me as being rather obvious. Five minutes after all this goes live the tax authorities in Romania, France and Spain etc will be actively looking to raise money through sellers from other countries by imposing huge fines for spurious reasons. The British government has just signed back up to the European arrest warrant against widespread public disapproval, so if you resist you could find yourself hauled off to prison in Greece or somewhere for six months before you even get a day in court.



HMRC is giving conflicting information to different people and their interpretation may well be different from another country. We saw this with the EU Cookie law for example but in this case the UK took a fairly relaxed position. I don't see that happening where VAT is concerned.



We need some serious answers and fast or our only option will be to go through the likes of Amazon, which has numerous drawbacks but should in theory be safe from a tax point of view.

[arpeggio]

Thanks Sgt_Bilko I didn't notice that that link also links to this official link (has the following been mentioned on here yet?)...



https://www.gov.uk/government/publications/vat-supplying-digital-services-and-the-vat-mini-one-stop-shop/vat-supplying-digital-services-and-the-vat-mini-one-stop-shop



I think the part that applies to us is:



~#~



1.5 Record keeping



If the presumptions referred above don’t apply, you’ll be expected to obtain and to keep in your records 2 pieces of non-contradictory evidence from the following list to support your taxing decisions. Examples include:



the billing address of the customer

the Internet Protocol (IP) address of the device used by the customer

location of the bank

the country code of SIM card used by the customer

the location of the customer’s fixed land line through which the service is supplied to him

other commercially relevant information (for example, product coding information which electronically links the sale to a particular jurisdiction)



Once you have 2 pieces of non-contradictory evidence that is all you need and you don’t need to collect any further supporting evidence. This is the case even if, for example, you obtain a third piece of evidence which happens to contradict the other 2 pieces of information.



You must keep VAT MOSS records for a period of 10 years from 31 December of the year during which the transaction was carried out.



~#~



So at a minimum we need their address and IP. I wonder if it might be possible to obtain this information after purchase by absorbing the VAT off the price after purchase, rather than needing to add it on before they buy (and therefore need more info from them).



Also according to HMRC's own assessors MOSS gets a "Not passed".



https://gdsdata.blog.gov.uk/vat-mini-one-stop-shop-service-assessment/

[sgt_bilko]

We are all required to use systems designed by others such as the government, banks and insurance companies etc. We have no say in this design and are given no details about it. When the systems fail, because they are inadequate, we are suddenly liable for any losses. What sort of logic is this?

[oh2g]

VATMOSS is a complete disaster for so many small e-businesses selling B2C.



Unfortunately E-junkie needs to get this addressed really quickly. I love E-junkie and has worked for well for us, but they need to tweak the system for more flexibility to workaround these silly laws, otherwise we will have to try another service.



Please Note: You are able to sell digital goods if you manually email the file to the customer! this has been confirmed by HMRC. This is not ideal as it sends us all back 10 years or more…



You are also still ok if you are selling B2B as long as you collect a valid VAT number from your customer that resides in the EU.



The ideal solution is for there to be an EU wide minimum threshold for small businesses to still operate without paying VAT. Here's a petition to sign - http://chn.ge/1vjvbXC

[arpeggio]

oh2gVATMOSS is a complete disaster for so many small e-businesses selling B2C.



Unfortunately E-junkie needs to get this addressed really quickly. I love E-junkie and has worked for well for us, but they need to tweak the system for more flexibility to workaround these silly laws, otherwise we will have to try another service.

Incase this hasn't been mentioned here before, here's the UK government's official advice as to Determining who is making the supply:



To be found under "1.2 Determining who is making the supply"



https://www.gov.uk/government/publications/vat-supplying-digital-services-and-the-vat-mini-one-stop-shop/vat-supplying-digital-services-and-the-vat-mini-one-stop-shop



Namely this part: "If you supply digital services to consumers through an online portal, gateway or marketplace then it’s important to determine whether you’re making the supply to the customer or to the platform operator. Where the platform operator sets the general terms and conditions, authorises payment or delivery, or doesn’t clearly state the name of the supplier on the receipt or invoice issued to the consumer, then they’ll be seen as making the B2C supply even if they’re contractually only an agent."



I can't tell from this myself whether that means eJunkie, others will know better I'm sure.

[sgt_bilko]

I've read that about five times and now I'm honestly not sure. After all PayPal sets the general terms and conditions but e-junkie delivers the files. If it turned out we could just ignore this I would be very relieved and then send a very nasty letter to the government for having wasted so much of my time with unneeded stress.

[sgt_bilko]

There has been some progress as HMRC has partially relented but it's not nearly enough and we'd still be left with all the EU complications http://www.telegraph.co.uk/finance/businessclub/11268706/Victory-for-UK-micro-firms-as-HMRC-tweaks-EU-VAT-MOSS-rule.html

[willwood]

I've had several telephone conversations with HMRC today. It's quite clear they haven't got a clue what's going on either! Basically their role currently is just to read you what is already on the website. They could not answer my question about what actually constitutes as a digital download or how the variable-rate taxing is displayed to customers. Nor whether the information E-Junkie currently collects for each transaction is sufficient for VATMOSS. They would not even provide me with a sample of what a VATMOSS submission form looks like or details of how easy it is to complete every 3 months. Complete waste of time...



I read on Twitter earlier that only 400 UK businesses have actually enrolled on VATMOSS. I don't know where that figure has come from, but that is shockingly low; considering the many thousands of sole traders publishing creative content in digital format. Much like the EU cookie laws, I'm guessing there is going to be a lot of people not complying with the new VAT law after 1st January. The government hasn't really got enough tax inspectors to enforce it, neither enough prison space to lockup the offenders!



I've contacted E-Junkie; just to casually find out some details about how taxation would work if I'm VAT registered and what pricing my customers would see on the website. I don't know if they are going to see the net price or the gross price (or a combination). And other factors like detecting what country people are buying from, so they can't just automatically select a low-VAT country for some added discount each time.



At this stage I cannot see myself becoming VAT registered or complying with this new law. The digital downloads I currently sell only make up about 1/4 of my business; the total of which is well-below the normal £81,000 VAT threshold. More likely, I'll just disable automatic downloads and go back to manually sending out emails to purchasers with a custom message and the product attached. Not ideal, but if it saves me the extra paperwork and the customer up to 25%, then I suppose that is a compromise worth making.