New EU rules on VAT (value-added tax) come into force on 1st January 2015. At present, the tax applied is the rate prevailing in the country of supply. Thus my ebooks are taxed at the rate of 20%. From the beginning of next year, this will change, and the rate of tax applied will be according to the place of purchase.
There are technical difficulties associated with the administration of this approach. As a supplier, I will need to have two non-conflicting pieces of evidence about where a purchase took place. If, let's say, you live in England but are on holiday, and purchase one of my ebooks while staying in your villa in France, your IP address will indicate that you are in France, while your permanent address will indicate that you reside in the UK.
Is this what my desk will look like once the new EU VAT rules come into force?The evidence has to be retained for ten years. Also, even if suppliers register with the UK tax authority's "one stop shop", which precludes the need to become registered for VAT in all 28 countries of the EU, they can still be required to answer queries from the tax authorities of any one of the member states. This, at least, is my understanding of the situation. At this point I should like to say that I am not a tax expert, so check out all this for yourself if you need to! I am just explaining what the situation is as I understand it with regard to my ebooks.
Could I use a third party platform?
I already do, but…. Some digital goods suppliers are taking the view that going through a third party should absolve them from the administration. In theory that is true. If you sell goods from your own website, ie the goods are stored on your server, and it is your shopping cart that processes the orders, then you have to collect all the information required. If you subcontract that to a third party, then the technical aspects are their problem.
However, I think that there are three issues:
Does the third party collect all the data required?
As you can probably tell from the second paragraph in this article, collecting the right evidence is quite a technical challenge. A lot of third party platforms have only just started to realise what is going on with VAT, and so have not yet sorted out a solution. I am currently trying out one that says it can handle the data collection requirements in most cases (see below for details, and for news of a fantastic offer for subscribers to Digital Education!). Even the one I’m trying out states that they have found that in about 3% of cases there are not two non-conflicting pieces of evidence about where the customer bought the product. However, they have a setting, which I have switched on, that holds up the sale if there is a query. That enables the supplier to deal with it before any money has changed hands.
Who is responsible?
Even if a third party platform does everything needed, the seller would still have responsibility for retaining proper records even if the third party platform deals with the payment of VAT. I’m pretty sure of that anyway. Even if I am wrong, it seems to me to be the most sensible position to adopt. If you are the supplier, earning income from sales of digital goods, surely the “taxman” is going to be expecting you to provide the relevant information?
Data protection issues
Because the customer data has to be kept for ten years, many micro businesses will probably have to register under the Data Protection legislation (our company already is, so this won’t make any difference to us).
Why has the rule changed?
The reason for the new rule is that some large companies were distributing their products from Luxembourg, which has the lowest rate of VAT. This rule effectively overcomes the resulting loss of revenue. A laudable intention, no doubt, but with the unintended consequence of making it almost impossible or, in some cases, completely impossible for small digital businesses to continue in their present form.
As Rosie Slozsek says:
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 –
- It’s worldwide for even the tiniest of businesses (and blogs) with even one automated digital component
- The VAT threshold hasn’t been applied so if you sell even one 99p ebook (or a live programme with only one automated resource) you are affected
[Update: I understand that the VAT threshold has now been applied, but only as far as UK sales are concerned. That means that companies don’t have to register for VAT if they are below the threshold and supply goods only in the UK.]
From: EU VAT Changes 2015 – What You Can Do
Incidentally, if you think that because you may live in a non-EU country you don't have to think about any of this, I'm afraid that you're mistaken. If you sell digital goods to any EU country, you have to abide by the VAT rules. Can you prevent sales to EU countries? You can try, but with no guarantee of success.
Can you simply exclude sales from other EU countries?
Technically speaking, it’s not an easy or guaranteed option. Even if it was, you would almost certainly fall foul of anti-discrimination laws.
Further information
The best place to start is the link given above. There are several articles linked to from within that blog post. Also, search on Twitter for #VATMOSS (and #VATMESS).
OK, so what about my ebooks?
So why am I telling you all this? Because unless and until I can be absolutely certain that these new arrangements won't tie me in knots for years to come, the simplest solution, though a regrettable one, is to stop selling ebooks altogether. If that turns out to be the case, I will switch to print-on-demand for some titles, and probably discontinue some others. (This in itself may be a temporary solution: the new VAT rule will apply to non-digital goods as well, from 2016. Hopefully, by that time there will be some sort of dispensation or other solution for very small businesses.)
In theory, I don't have to discontinue selling the ebooks until 31st December. In practice, I’ve set a time and date limit of 23:00 GMT on 30th December 2014, which is when I will evaluate the third party service I mentioned. It’s called Sendowl, and seems very promising. I am trying it out now. Come the end of December, I will be in a position to decide whether to continue selling the books, or stop.
What that means is that if you would like to buy any of the ebooks listed below you will need to do so quickly:
- Go on, bore 'em: how to make ICT lessons excruciatingly dull
- Creating a technology-rich school
- Every Child Matters: what it means for the ICT teacher
You can find out more about these ebooks by going to our ebooks via Sendowl page. Each of the ebooks costs £1.99 plus VAT where applicable. Each one actually is a compressed file containing three formats of the ebook: pdf, ePub and Kindle. Between them they should cover most ebook readers. I’ve set it up like this because I don’t see why anyone should have to buy the same book again for a different device.
If you subscribe to Digital Education, you can use a code that will get you a 50% discount. Woohoo!
I should like to emphasise that this suggestion of discontinuing our sales of ebooks is not a marketing technique! Like many people I have come to the conclusion that the administration costs, and the potential risks (eg being fined for an innocent error or omission), associated with selling ebooks could make doing so completely unviable. I was all set to discontinue selling the ebooks from the end of December, but Sendowl has, in effect, provided a stay of execution as it were.
So all I can say is: watch this space. If you do buy some ebooks, I’d be interested in your feedback on the process. Reports coming in so far from people who have volunteered to test it indicates that it is pretty seamless. Fingers crossed!
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By the way, if you wish to try Sendowl, you can if you wish do so via this Sendowl referral link. If you sign up and end up subscribing to the service from that link, then I will receive some money from Sendowl.