The New Year Is Here

There have been some major changes as to how I sell my products, that as of 1st January 2015 have come in to effect. It’s all due to the new EU VAT legislation regarding digital products that I previously wrote about here.

Under this new EU law it states that third party sites like Craftsy and Etsy that I sell through, should be the ones responsible for dealing with collecting and paying the VAT due on any EU sales. However, both Etsy and Craftsy have stated that they won’t deal with paying the VAT. Which is one of several reasons why this law is so hard on businesses like mine, as it had assumed that third party sites would deal with the VAT and not impact micro-businesses.

As I stated previously, registering and dealing with VAT payments myself is too costly, particularly when only 1% of my digital sales goes to other EU countries (outside the UK) which would mean about £5/year or so VAT due being paid to about 10 different countries i.e. each EU country would receive pennies from these sales, it would cost the EU countries more to process and collect the payment than what is owed. It’s completely ridiculous, which is why a minimum threshold is needed. EU VAT Action is campaigning on behalf of micro businesses and consumers. I already have heard of several different sellers saying they will block EU customers entirely, so not only will EU customers find prices of digital products increase due to VAT being added on, but we’ll also find that the selection of products we can purchase be greatly reduced as other sellers refuse to sell to us. So please think about signing the petition.

Craftsy

I no longer sell my PDF tutorials on Craftsy. I can’t currently legally sell via their website. Even if I was willing to register and deal with paying the VAT due on EU sales, Craftsy don’t currently provide the appropriate customer location information that is required under the law. As they also don’t allow me to select which countries I wish to sell to (thereby not allowing me to exclude EU countries) I can no longer sell via their site. This is the reply I received from Craftsy on 23rd December 2014:

A. Our engineering team is working on building out a system that will provide you with the country that a buyer was in when purchasing your pattern which we can provide you as part of the downloadable CSV for all of your pattern sales. You will still need to determine taxes and fees appropriately. For questions see: https://www.gov.uk/vat-on-digital-services-in-the-eu

More information to come on this! We’re aiming to have this live in January, and I will work with our engineering team to see what we can do to back populate information for sales made in January before this is live.

B. As far as preventing payments to certainly countries, we’re still working with PayPal to determine if this is possible and if so, how that affects those that attempt to purchase your patterns – ie what that experience looks like to your potential customers on Craftsy.

However, with no date of when they will implement limiting to certain countries, I have had to stop selling through them.

Purple Wyvern Jewels Site

I did have purplewyvernjewels.co.uk set up to sell to anywhere in the world. However, in order to limit where I sell my PDF tutorials to, I can only do that by limiting the overall countries that the entire site sells to, as I am unable to limit based on specific listings. As I’ve only ever had UK customers purchase through this site, I’ve limited the site to UK customers only.

Etsy

Any customer can purchase my physical products via my Etsy shop. However, I have had to change my PDF tutorials to being emailed out (as you can’t limit countries if the items are downloadable), plus I’ve currently limited my tutorial items to Australia, Canada, New Zealand, UK and USA customers as they are my target customer base. I can add other countries if a customer wishes (but not EU ones), but the way Etsy allows you to select which countries you sell to makes it difficult to exclude only a few. In this case I don’t want to sell to EU countries outside the UK, but there is no easy option to choose, instead you have to add every single other country in the world to say you will sell to them, which is why I’ve so far just added my target market countries.

Etsy wrote a blog post on 22nd December 2014 (after knowing about the EU law change since June 2014) and is the first official response they provided any of their sellers. They state:

1) Providing information on buyer countries: Beginning in January, you’ll be able to verify the country of your buyers.

2) Control over where you sell items: We’ve heard from you that you’d like to be able to control the countries in which you sell digital items. We are looking into the feasibility of this and will update you in early 2015.

However, with no date as to when they will implement any of this, it’s a little bit late for an awful lot of sellers on Etsy. I have not been impressed with their communication on the issue, and even worse some Etsy sellers only found out from an email Etsy sent out on 31st December 2014, even though they put a blog post up the week before about it all.

Payhip

Payhip is a company I came across while searching for somewhere that I could legally sell my PDF tutorials through to EU customers, preferably somewhere that allows digital downloads. I was looking for a site that would not only deal with collecting the VAT, but that would pay it on my behalf to the appropriate authorities, so that I wouldn’t have to deal with the tiny amount that would be due for the amount of EU non-UK sales I typically get. So I’ve specifically set up an account on payhip at payhip.com/purplewyvernjewels for EU customers outside the UK to be able to purchase my tutorials, although anyone in the world can purchase via this site. I’ve set my prices on Payhip to be VAT inclusive, so the price you see, is the price that you pay. I’m currently still setting this up, so not all of the tutorials are currently on there, but I will be adding all of my tutorials over the next few days.

Having found a website that will still enable me to sell my tutorials to EU customers, allows me to continue selling my tutorials anywhere. As if I didn’t sell to other EU countries, I could be breaking the EU anti-discrimination law, by refusing to sell to particular EU countries. In order to comply and stay legal with selling my tutorials I will be taking a 29% loss on my digital sales by not selling on Craftsy anymore, but I’ve at least managed to find a solution that allows me to keep selling my tutorials. I have heard of others that have stopped selling entirely as they can’t currently find a solution that works for their business.

Overview Of Where You Can Purchase

Customer Location purplewyvernjewels.co.uk Etsy Site Payhip Site
UK physical & digital products physical & digital products digital products
EU (non-UK) Countries physical products digital products
Everywhere Else physical & digital products digital products

I also sell a limited selection of physical products to anyone through Dawanda.

Advertisements

New EU VAT Digital Selling Law Change

Tax may be a boring subject of conversation, however up until last month I was fully unaware that there were new law changes coming in to effect that would have an impact on how I run my business. It’s the EU VAT broadcasting, telecommunications and e-services rule changes that come in to effect on 1st January 2015. It’s not been widely broadcasted, I haven’t seen anything in the news about it, I happened to come across a forum post of another small handmade business discussing this issue.

Previously businesses had to deal with VAT (as appropriate) in the country where they are based for all sales they receive. The new changes mean that the VAT needs to be dealt with according to the EU country that the customer is based in, for broadcasting, telecommunications and e-services. Thereby, having to deal with multiple VAT rates and paying mulitple countries taxes when selling to customers within the EU.

My understanding was that these new rules were meant to deal with big major businesses setting up their base of operations in a country with a lower VAT rate, and therefore having an unfair advantage over smaller companies based in other EU countries with a higher VAT rate. Whilst many countries have EU VAT thresholds, like the UK (UK VAT thresholds) many EU countries have a nil threshold for a business with no fixed establishment in their country. Therefore, businesses will have to deal with all of the various EU VATs if they wish to sell within the EU.

Businesses can register individually with each EU country they wish to sell to, or if you’re based in the UK, you can use VAT MOSS, which is a one stop shop to allow easier dealing of VAT across the EU. However, in order to use this MOSS system you have to register for VAT, even if you fall well below the UK VAT threshold like myself. This would involve quarterly VAT accounting and payment of any VAT owed, plus appropriate record keeping and VAT invoicing etc.

As a very small business, it’s not in my business’s interest to register for VAT within the UK. To do so, I would have to pay an accountant in order to make sure all the appropriate paperwork and accounting is done correctly to meet the VAT rules. Whilst my business is profitable, and I’m working on building my business etc, there isn’t enough profit to employ somebody else out of the current profits. This will be the case of most “micro” businesses (as I’ve heard us called). Therefore, the impact that this new EU VAT rules have, is that I will potentially have to stop selling my digital sales (PDF tutorials). This is a hindrance and is limiting the potential of not only myself but other micro businesses who are forced to make the same decision that I have. When businesses are having to limit what they sell, that’s not good for customers either.

There is a UK petition that’s been put together on this very subject, it’s calling for Vince Cable to intervene and uphold the existing VAT Exemption Threshold for businesses supplying digital products. Therefore if you are affected by this, whether as a business or as a customer, please do sign: UK petition

** DISCLAIMER: Please note that everything written here is my own personal view. If you are a business affected by this law change, do get appropriate advice from a professional or the HMRC.