How the new VAT regulations may affect micro-businesses, DIY music & self-publishing

© Richard Dundas 2014
© Richard Dundas 2014

New EU regulations? VAT MOSS? What does it all mean? It’s like someone giving you cake and then punching you on the nose if you’re a small business. Or even just a bedroom DJ selling electronic clicks for next to nowt. It’s an EU law brought in to try to tackle the Amazons and the Googles’ tax-dodging antics, but they’re not making small businesses exempt.

“Internet outrage is the caffeine of the 21st Century.” So says Charlie Brooker. So when faced with my immediate outrage on seeing a petition calling for SMEs (small and medium sized enterprises) to be exempt from the new EU regulations on VAT, I thought I’d do a very unfashionable thing. Research.

The law will take effect from the 1st January 2015, so you need to pay attention to whether this affects you now.

I’m not the only one to have ever kicked off about something on the internet, only to learn that actually it doesn’t affect the little guy/gal the way a hyperbolic article or petition has lead us to believe. But my research has lead me to find that this is hugely damaging to small businesses in the short term at least, especially micro-businesses such as self-publishing and DIY music which are often done for love not for an income.

It’s awkward to filter the info you need when you read about this, and let’s be fair any article that is purely about VAT regulations is never going to be clickbait & seek to hold the attention span of the average cyberblob. So here are my findings to the best of my understanding. Along with some good links to folks with more knowledge than me!

You don’t have to register for VAT in the UK if your turnover is less than £81 K, most of us are nowhere near this lofty number so can safely ignore VAT. But the new EU regulations mean that on digital content (ebooks, music downloads, knitting patterns, video downloads, software), VAT will now be charged according to where the customer is, not place of supply. The intention of this is to stop Amz/Goog from putting their ‘place of supply’ as somewhere like Luxemborg, where they can pay naff all taxes.

But it doesn’t just count for the Goliaths. Because the tax is on the place of the customer, the seller will be liable according to the specific tax rules of that EU country. So even if the seller is based in the UK and under the £81K threshold, they will still have to pay VAT in the country the customer lives. IT GETS WORSE. To do this you have to register for VAT in the UK which means you have to pay VAT here (stupidly ebooks have 20% VAT on them in the UK, even though proper books are zero rated, because they’re considered an essential and not a luxury). And because the rules are slightly different in every country you need a supersonic spreadsheet to work out who and where you will owe tiny sums of money to. That’s where MOSS comes in. So while Mr Amazon’s minions will run around taking care of this little inconvenience and finding some loophole, micro-businesses are being left confused and burdened. It’s just a bit pants.

Let’s break this down and for the underdog.

You sell ONE song, ebook or knitting pattern directly to a customer (rather than through a site like Amazon which charge a percentage) for as little as 99p, you will have to do several hours of admin paperwork just for that and be liable to whole bunch of charges/headaches you were previously protected from. You will ultimately be able to claim back the VAT. But in admin/time costs you’ll be out-of-pocket.

Some useful links and then my own breakdown for DIY music & publishing…

For a great overall breakdown of how this affects different types of small businesses see this article by Rachel Andrews.

Here’s the HMRC flowchart on whether this affects you, although I think it’s clear as mud with regards to music & ebooks which are platform specific.

Good news for those selling knitting and crochet patterns as Ravelry are teaming up with LoveKnitting to work around the new rules.

Many companies are coming up with third party solutions, the afore-mentioned Rachel Andrews is collating them here.

Updated breakdown of various rules/loopholes from HRMC

Here I’m gonna concentrate on how this affects self-publishing and the DIY music scene, in order to stop this post filling the whole of the internet.

Sales Platforms & whether this will affect you.

Bandcamp – Here’s what Bandcamp are saying, and here is my interpretation of this according to my research. Like many others, Bandcamp are trying to support their users by making this more digestible by calculating and adding the VAT for you. But this still means you have to be VAT registered and do a VAT return. I gather from what’s said here though, that they will be altering the way they operate so that they will handle the VAT themselves, just not yet. They say – “In the first half of 2015, we plan to make payments for digital transactions flow through Bandcamp. Among other advantages, this will allow us to take care of everything related to digital VAT, including tax reporting and payment.”

So my anecdotal advice here is leave music for streaming or FREE downloads on Bandcamp, but take down paid downloads for the time being. And wait for them to alter the way they operate. They also state you can’t restrict sales to outside the UK, thus bypassing this issue. Free downloads are exempt from the VAT rules but I would guess ‘pay what you like’ are not. This possibly gives the option of offering a physical item (a postcard, print, t-shirt or record) that comes with a free download. Provided you make clear the download is free. A possible loophole for y’all.

Update! – Bandcamp seem to have sorted this out & there will be no need to register, see blog here.

Amazon – If you sell through Amazon, e.g. KDP authors, they take a percentage therefore they will pay the VAT. The customer will simply pay more according to their local VAT rules. Here is what they say. No very clear, I think you may need to alter your prices a little, but nothing too drastic comparatively. The same will likely be the case with e.g. Smashwords who also charge percentage sales.

Limited Run – I use Limited Run because they’re good for selling digital content as well as physical books/music etc, unlike other online shops services which require you to add an extra app and tend to charge. Because I pay a flat monthly rate with Limited Run rather than a percentage on sales, this means the new rules apply, as they won’t be handling VAT for me. One publisher has stated they will no-longer sell ebooks to those outside the UK through Limited Run. But I can see no way on my dashboard to restrict digital sales according to region, I contacted Limited Run and they said I can’t do this, and the help team also knew nothing about the new laws! Hopefully their accountant does.

I’ll be very annoyed if I can’t get around this, as it’s the best way to avoid the Amazon monopoly on our ebook sales. I’ve been considering removing products from there altogether.

iTunes & Spotify – Like with Amazon, these big platforms take a percentage on sales, so they’ll handle the VAT & you won’t need to register, but may need to adjust your prices accordingly.

Direct sales from your own website – I’m afraid this puts you in the worst of it! Other platforms will no doubt come up with solutions to these issues pretty damn soon, many have already started. Your choices are this: stop selling digital products; offer free downloads with physical items that you sell; work out a way to restrict sales to the UK only; register for VAT and register for MOSS (mini one-stop shop), the scheme set up to help you report digital sales and pay the right tax.

Summary –

This is currently a bit of a disaster for SMEs and micro-businesses, but I gather many things are still being worked through and platforms like Bandcamp who do great work to support us are working on finding solutions. So it’s not all doom and gloom. But for the time being it’s a massive ball ache and we need to make some noise to show the Gov they need to pay this some better attention. Time to get that pitchfork out.

Further research articles, from which my information has been gleaned –


Telegraph petition

If any of this info is incorrect, please let me know and give a link to your source. Dissemination of CORRECT information is very important to us! Cheers.


HRMC have released further info to clarify a few things

Threshold – The main point I take from this is that you can register for MOSS in order to sort out the VAT for customers in other EU countries, but still fall below the £81K threshold in this country. However! You still have to register for VAT & do VAT returns, but you don’t have to add VAT to your sale prices, thus making them less appealing to the customer.

What counts as digital content – Also, if you read through Section 2 on what counts as digital content, in the exemptions list it states e.g. a PDF manually emailed to a customer. In terms of digital content, they’re trying to tackle automated downloads & automated emails. So in theory if you emailed an MP3 or ebook to a customer, you wouldn’t fall under the new rules. The downside of this is it’s makes illegal file sharing easier esp. with ebooks.

By Kirsty Fox, co-ordinator of Bees Make Honey Creative CIC

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