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I am co-founder of EU VAT Action, the primary campaigner for a threshold for EU VAT for microbusiness.
This last point is what I argued for in November 2014 when I wrote my original article below the updates. Read my piece in City AM.
Find out how you can help here and let’s make it happen.
This post was written in November 2014. The fundamentals are still correct. However, it’s been a part time job keeping it current. This isn’t the best use of my client time as I’m sure you’ll agree.
If you prefer only to know when major events occur, then join my mailing list and I’ll keep you updated without the week to week updates we have in the main group.
Remember, as I write EU VAT Action is 3 months old, and we’ve had meetings with Financial Secretary David Gauke and Prime Minister David Cameron, as well as several senior members of HMRC. Your voice is being heard.[17/8/15] We’re going to Fiscalis, the conference with all EU Finance Minsters and the latest on the Irish EU VAT ‘scam’ – read more [20/5/15] We are calling for the UK government to grant an emergency Extra Statutory Concession for micro businesses to allow us to continue trading while the EU goes through due process for a threshold – Read More and Take Action
20/12/2014: I met with government and HMRC here
New EU VAT changes start on 1 January 2015.
This is not your usual ‘more red tape’. I won’t be writing my usual jaunty style as this is too serious, I won’t lie to you. It’s worldwide not only EU.
It’s a long post of several thousand words and I ask you to read to the end and promise me you won’t freak out. I have positive words to say at the end and suggestions for action 🙂
(Legal disclaimer: This post is my opinion and is not advice. I am not responsible if you do or do not follow any of the information contained in this post. This post is written as the personal perspective of an owner of a partly digital business).
To be clear, I am not disputing the EU VAT changes legislation. It’s the implementation.
I’ll be including background, why it’s so important for the global economy and not just a red tape issue for a few businesses.
I’ll be sharing what I’ll be doing and what options you may have going forward so you can make a good decision for your business. I am speaking as an individual and business owner who is affected by this as you are.
If you are reading this, you’re likely a member of the global community that are digital content businesses. We’re making a huge difference in tackling worldwide issues like job creation, growing the economy, reducing burnout, increasing productivity in the workplace and caring for children and parents.
We also appear to be invisible as well as being the new global frontier.
Previously, VAT was charged in the country the seller was located and the seller applied the relevant rate of VAT.
(For most of you reading, VAT would be not applicable as you’re under the UK VAT threshold and you choose not to voluntarily register)
This legislation changes the place of tax so VAT is applied at the rate in the country where the buyer is located. So far so ok. It’s a pain in the ass but it’s part of business.
The problem is that this legislation hasn’t considered or clarified the most basic practical issues to be able to comply with the law. It’s quite astonishing.
What’s most astonishing is that –
Read these resources to give you more detail about what’s happening.
There is a lot of dry as a bone and contradictory and incomprehensible content in some of these links. Stick with it and get informed:
New EU VAT Regs Threaten Small Businesses > If you only have time to read one article, read this from Soozi Baggs at Huff Post UK
New EU Vat Rules Change The Game For Digital Businesses > If you only have time to read two articles, read this one too.[Added: Going more into the details of the impact > From Heather Burns
VAT: Supplying Digital Services And The VAT Mini One Stop Shop > HMRC’s own advice. You will notice they helpfully contradict themselves in 1.4 Determining The Place Of Supply. Please also note that you can’t rely on HMRC’s advice as if another EU country disagrees they can pursue you in their tax system.
VAT Information Sheet 08/14 > HMRC reply to questions. The questions aren’t necessarily answered.
EU Telecommunications, Broadcasting And Electronic Services > Direct from the EU. Pack a few spare braincell battery packs for this one.
EU Explanatory Notes > Direct from the EU. Pack a braincell generator for this bad boy. Especially note the record keeping section and how the EU takes time to mention the explanatory notes are not binding so we can’t rely on them legally.
Taxamo Interview HMRC About The EU VAT Changes 2015 > Worth slogging through. It’s why this is not just about upholding the UK VAT threshold so it doesn’t affect the smallest businesses. In its current form, it’s unworkable for all but the very biggest worldwide companies.
MOSS is Mini One Stop Shop where if you are UK VAT registered you can make 4 VAT returns a year for the EU and UK and not do returns for each country individually.
It doesn’t help you if there is a problem (you then need to deal direct with the tax authorities in that country) nor does it account for claiming back UK tax and every refund means a VAT return amendment.
Take a deep relaxing breath if you notice you have tension in your body. Let it go. Take a few seconds break if you need to.
Unfortunately these changes are global.
Since it’s not possible to restrict sales to only UK and non-EU countries with 100% accuracy (if you’re UK based) or worldwide except EU (if you’re not EU based) every business with any automated digital content is affected [update: 8/12/14 even if your content is dominantly live human-interaction].
Not only that, but they expect you to keep records to prove you haven’t made any EU sales (thereby still retaining the record keeping impossibility nightmare).
This is not just about digital services and business income.
The majority of my clients have digital services (including me) and the majority of my clients have those services because it is a key part of their business model to build an income independent of time.
We are at the frontier of solving global problems by creating digital businesses with income independent of time and location that can provide for our families without dependence on ability to work.
Think of a few of the most challenging global issues: the cost of caring for the elderly, for paid childcare, for anyone temporarily or permanently too ill or injured to work. The cost of workplace burnout, lost productivity from stress, challenges of job creation.
Digital businesses can help solve and reduce all of these critical national and international challenges business by business, family by family.
Read the story of mum-to-be Issy Zinaburg, who started the Change.org petition >>>
The government, and most governments, have education and learning as a key part of their policies to keep the economy growing, to expand GDP, to build industry.
(I take it as read we all know that learning is good.)
Digital services, products and programmes are a key methodology of how the experts of the world disseminate their knowledge.
Did you know many leaders in education have ebooks and courses? One of them could easily be your kid’s teacher because I am talking about ordinary people who have extraordinary skills and giving worldwide access via digital content. This will stop.
As I was drafting this post, one of my favourite US bloggers posted she’s planning to add more e-courses to the wealth of information she provides about natural skincare and wellness which I personally use most days. Is all that going to go?
Digital businesses allow people to learn at no cost to the government.
So where does this leave us?
I have no issue with the change in the law.
The problem is the legislation is mostly grey with very little we can make an honest judgment on to make sure that we comply with the law.
Even the EU guidance isn’t legally binding!
Let me take the buyer’s location as an example.
You need to keep 2 pieces of non-contradictory evidence of the buyer’s location. How you are meant to do this is not made clear, especially when most of us use payment providers like Paypal.
Consider an Italian citizen buying an ebook using an Italian credit card on a cruise using the ship’s UK IP address and where the last port was in Spain. Is it the tax-resident country (Italy) as stated in the HMRC guidance, is it the IP (UK) as stated in a contradictory part of the HMRC guidance, is it the country of the port last left as stated in EU guidance (Spain). In addition, how are we meant to know which country an individual is tax-resident in?
I’ll skim over how we are meant to get this information as most payment providers don’t provide it because of other legislation keeping payment details private.
You need to keep this evidence for 10 years and at any time the country of the sale (assuming that was clear which it isn’t) can challenge you in their own country’s courts. The records need to be kept on an EU server, which is tricky if you use a non-EU server at any point which almost all of us do.
To misquote Kylie, it’s enough to spin your head right round.
You don’t need to know all the in’s and out’s of the new legislation. You only need to know enough to take the right action.
The buyer’s location is only one element that is unworkable and I didn’t mention individual wifi, VPNs and data by international SIM. I haven’t mentioned the different rates of VAT which are ever changing and the data protection issues.
You only need to know enough to take action and to make a decision that is right for your business now.[Update 15/12/14: Having some or mostly live human interaction as part of your product or service does not exempt you. There is no minimum, so sending a recording of a live webinar (for example) means your service comes under the new rules. You can’t host resources on your website for your live workshop or your live programme. You also can’t change from previously automated to manual as that looks remarkably like trying to avoid paying tax]
All worldwide businesses except the very biggest are unfairly exposed by this legislation, even when the uncertainties are resolved.
None except the biggest businesses can afford to keep up with the changing tax rates and changes of most of a continent’s countries and the technical challenges of the cutting edge of global digital business.
Keep the responsibility with online platforms and payment providers. [15/2/2015 See EU VAT Action for updates on the payment provider situation and Paypal]
Online platforms – like Etsy, Folksy, Craftsy, Apple, Google Play, E-Junkie, Big Cartel, Shopify, Easy Digital Downloads, WooCommerce and Amazon – and payment providers – like Paypal, Stripe, Worldpay, IntuitPay and Google Wallet – are used by all but the very biggest businesses.
All but the very biggest businesses use a payment provider, including some of the online platforms, as the regulations surrounding use and data protection of payment details are rightly strict with severe penalties, and have similar technical and cross-country challenges as the new EU VAT legislation. For them it is ‘just more red tape’.
The current situation with payment providers provides a precedent.
Allow online platforms and payment providers to be legally responsible for record keeping, correct tax rate provision and cross-country tax dispute resolution. They can use MOSS.
Our responsibility is to only trade through those platforms and providers and select the correct options for our business.[Clarification in response to concerns: A lot of online platforms are independent. I use Easy Digital Downloads which is a WordPress plugin and Paypal as my payment provider. You can sell directly and easily using something like this and an integrated payment provider. You aren’t forced to use a big company]
Clarify the legislation regarding online platforms and payment providers.
Make it clear and legally binding that online platforms and payment providers take the record keeping and correct tax-charging legal responsibility – with worldwide businesses not vulnerable to being persued by foreign tax authorities for up to 10 years.[Update: Currently Paypal (and probably many other payment providers) cannot fulfil the requirements. That doesn’t change that it is they who need to be able to. There are precedents in other areas of data protection for fulfilling those legal requirements. Read more] [Update 5/12/14: Are you part of the global tech community? Read web dev Rachel Andrews’s here and her Github resource here and this post which covers some of the issues. Here is an opportunity of a lifetime coding solid, trusted, UX-friendly solutions once we have EU-agreed interpretation and clarification. Get the big players involved and ask why the global tech media are barely covering this massive threat]. [Update 15/12/14: Are you a blogger? You are affected too. Your sales of anything with an automated component are included. So are self-hosted ads, where you accept payment directly (including a service like Passionfruit Ads). Ads via Google Ads are not affected as you display not provide the service.]
I mean that. I can see you.
Panicking is the enemy of action and action is what is going to save our ass.
Full details of the 4/12/14 government and HMRC meeting I attended here.
Keep up the pressure to HMRC, your MP/MSP, your MEP, the press and on social media tagging the official accounts. Why are the national press not covering this more?
HMRC need our help for them to help us. Make it clear that nano businesses need exceptions at EU level to comply with all the relevant laws (data protection laws, non-discrimination laws, EU wide liability isn’t a good business risk at this level). It is not appropriate for nano businesses to keep identity theft level data for 10 years by law. It is also not currently possible to collect the data until definitions are clearly decided at EU level so the developers (techy people) can code (make) fully compliant solutions.
Focus on revenue (they like that word). The tiny amount of revenue lost by nano businesses having an EU-wide threshold and the benefit to country economies when people can create businesses that provide means to earn an income that keep people off state aid (benefits), enable people to stop claiming state aid (benefits), provide the means to provide care for children and parents so the state doesn’t need to contribute or pay, enables people who have mental health and physical difficulties to become a taxpayer (and stay off state aid). This hits them where it hurts in the coffers.
The UK is a global leader in nano digital businesses because of our high VAT threshold and other countries lose out on that revenue.
Ask HMRC and your politicians why the UK is not unilaterally suspending implementation to allow implementation issues to be resolved (it’s not just about VAT, it’s about data protection too).
We are voters, you are a voter, we are the people helping the government save on its huge education, child care, benefits, elder care and health care bills. I personally as part of my family saved the government around £100k by caring for my father in law. Give them numbers.
Keep it coming.[Update 3/12/14: Watch my webinar with The Real Women In Business Society focusing on taking action and making a decision for your business]
If you have a business anywhere in the world with any automated digital content (even a tiny bit), you are as affected as those in the EU.
I’ve seen posts from businesses as far away as Canada and Australia who will not have a business come 1 January. We need a global kick ass to get this legislation workable.
Your goal is to make sure your local and national elected political representatives know about this legislation and the threat it poses to the people they were elected to represent (you!). Their role is to pressure at national level and for national level to pressure the EU directly.
I want the presidents and prime ministers of countries across the globe pressuring the EU to make a change.
Online platforms and payment providers and the biggest businesses (who choose in-house) do the implementation, NOT us.
(We pause here for a reminder all is not lost. Hang tight).
What you need to do is make a decision about what is right for your business right now.
If you only have affiliate income and advertising then one thing that is (probably) definitely ok is that you don’t need to do anything. I won’t be changing the affiliate links on my site.
The problem with the legislation is that there are few specifics.
For example, if you have a live programme (100% live is not included in the new rules) with one automated component, we don’t know if you are definitely ok. HMRC say that the dominant method is what matters, but there is no minimum. As I said earlier, if a member state’s tax authority disagrees with HMRC’s interpretation, you have a problem.
In theory you’re meant to be ok. This is the internet though, people.
I doubt even Moss from The IT Crowd could design a system with permanent 100% uptime and no failures ever, even if you had plugins and drop down boxes meant to stop non-UK and non-EU buyers.
100% is required by this legislation. Then there is the details of needing to keep records you can’t get to prove you haven’t done EU business.
Disclaimer: This is my opinion and I am not responsible for what you do or don’t do. This is my interpretation and I may be considered wrong by the EU.
1. Decide what element of vulnerability you are comfortable with
2. Keep on sale, adapt or withdraw your digital content and services – for the time being. You may choose to keep your service pages live and add a link to this post about why your content is not available for sale
3. Adapt your content by making it a 100% live programme with no automated digital content
4. If you’re like one of the many people who contacted me with ready-to-launch or being-created content, take heart and adapt
5. This isn’t forever. It’s for now until we get a workable resolution[Edit: Read what Cerries Mooney of The Brand Alchemist is doing and her reasons why. It’s about a good decision right now for your business, in the short term. There is no right, wrong or perfect here. It’s a good opportunity for trusting yourself]
I am withdrawing all my digital paid-for content on 31 December.
I have only UK content for a UK audience so I am not intended to be affected. I am affected nevertheless. How can I prove my buyer fulfils the criteria? I am a risk taker by nature and this isn’t worth it.
The Tax Return Toolkit is my flagship content and has been downloaded by hundreds of freelancers in the year it has been published (to be withdrawn on 31 December).
I have been creating From Blog To Business 30 Day Challenge e-course for the thousands of bloggers wanting to do the right thing by HMRC with their blog monetisation (now on hold until further notice).
Ironic that legislation about tax stops freelancers getting help doing their tax. I’m still available live but that isn’t the point.
Sign up to my mailing list and follow #euvat to keep up to date.
Keep taking action to keep the political pressure up.
Keep in heart about the impact to your business.
I gently suggest you buy any paid-for digital books and courses in your bookmarks, Pocket and Evernote while you still can. It’s what I’m doing.
You may need to make other financial arrangements for a while until we know where we are.
Take heart. We’re a community and we’ll sort out this mess as a community.
Because One Man Band Accounting is all about helping cake-loving freelancers in the UK do their own tax return and get kick ass money management, I will not desert you.
As always, I give you cake and a kitten (right here, at the end).
Snuggle him on your lap while you sip your hot chocolate and nibble a brownie – and get writing to your MP and making the right choice for your business, and then relax. Email me if you need to.
Photos of me, Rosie Slosek, representing you, the cake-loving freelancing public, at a meeting with government and HMRC.
Get a feel of the vibe when a group of digital business owners who didn’t know each other existed until new EU VAT rules came along, started it all happening, and then we meet for the first time an hour before a meeting with government the day after the Autumn statement. This is what community means and I love it.
Now for the cake and kitten.
Copyright 2014 Rosemary Slosek. Please email me for permission if you wish to reproduce this content and include a link to this post.