There are some big changes coming for everyone who sells downloadable products or memberships, ecourses through their own websites.
The usual tax laws about applying VAT are changing significantly from 1 January 2015, right across Europe.
It doesn’t matter where in the world you are based, making any sale into the EU means you will be liable to pay VAT at the country rate where your customer is located.
Click here for the full definitions and guidance notes from the EU.
If you have something that you sell on your own website, doing nothing is not an option. Ignoring the issue might just land you with a big tax headache further down the line.
The £81,000 question
“Will I be better off I stay non-VAT registered?”
Before making any decisions on how you’ll adapt to these changes its worth asking yourself whether you do want to be VAT registered after 1 Jan 2015.
If you’re a UK based company or sole trader, the annual turnover threshold for VAT registration is £81,000.
If you aren’t currently close to this threshold, or your total sales to the EU are low, you may want to consider whether you want to adapt your strategy so that you do not have to change your tax status.
Are your turnover levels getting close to the VAT threshold?
If you are a UK company/sole trader and your turnover is likely to pass £81,000, or you make a lot of sales to the EU then you’ll have to register for VAT Mini One Stop Shop (VAT MOSS).
You’ll also have to find a way to collect your customer location data and add the correct tax rates.
There are a number of plugins and services being developed. Taxamo have been working closely with HMRC and have created a service that works alongside major checkout suppliers such as PayPal and Stripe.
Depending on which solution you chose and how the data is collected you may also need to register with the ICO as a data controller. If you are storing your customers payment data then you’ll have to be compliant with the 1998 Data Protection Act.
What are your options if you don’t want to register for VATMOSS?
If you’re starting out or unable to process/administer VAT at this stage in your business then you may want to look at the options for legally continuing your business without being liable for VAT bills across Europe.
Broadly your options are:
1. Stop selling digital products all together on your own site
Some people have suggested blocking sales to the EU. This will be difficult to enforce and possibly illegal. Probably better to look at this as either finding a compliant way to sell world-wide or not selling through your own site
2. You could use a re-seller platform (such as Amazon or Etsy) who will have to handle the VAT for you
By selling through a platform like Amazon you won’t be affected by the tax changes. Amazon have issued this guidance to their authors on how they will comply with the changes in 2015.
Not all 3rd party platforms have confirmed (yet) how they will comply with the change. Check with anyone you are currently selling with to ensure you are covered.
Please note that Paypal isn’t a 3rd party reseller, it’s a payment gateway. If you sell using your own site and Paypal you’ll have to register for tax.
3. Continue selling products on your own site, but add a ‘live’ element to courses/products
HMRC have indicated that if a ecourse or eduaction package incudes “ significant manual intervention” then it will not be liable for VAT.
Live training elements, fixed registration times and customers-only Facebook groups seem to take this out of the VAT liability.
Guidance on this is still developing so keep monitoring for any further definitions or clarification from HMRC.
This could well be a good route for many people who sell educational products. I would encourage you to keep following this for further clarification on these definitions. That’s the best way to stay on the right side of the fine print and make sure you’re don’t end up with an unexpected tax bill.
4. There may be an option to ‘split’ trade for UK and EU for VAT purposes
HMRC have stated the they would consider exempting UK sales under the £81,000 VAT threshold during a Twitter Q+A.
Vince Cable has also stated in his petition response that if EU sales can be separated from UK sales then the VAT threhold will be unaffected.
This remains a grey area and HMRC have stated that they will create detailed guidance on this. Once this is available it will be important to take advice from your accountant before you implement any changes.
With these changes coming into effect on January 1 2015, this is a good point to review your strategy and make some decisions about which direction will work best for you.
Disclaimer: Please note that this article contains an overview of my own research on this topic. It is not intended as either legal or financial advice. If you would like more advice on how this may affect you or your business please seek advice from your lawyer, accountant or HMRC.