VAT Mess

Well it’s been a while, so I thought I’d have a rant.

Last year I spent a good few months building up a library of video screencasts on various CSS topics; I called it AtoZ CSS and produced 26 videos (one for each letter of the alphabet) over a six-month period. It was a great experience and I really enjoyed the process and learned a lot in the meantime - both about screencasting and CSS.

At some point I decided that the next logical step was to write an ebook (again, all about CSS) and promote it through the AtoZ CSS site and to the list of people who had been kind enough to give me their email addresses.

Validate

As a fan of the Lean Startup methodology I thought a good way of validating the book concept would be to put it up for pre-sale and offer it at a discounted price. It felt a little weird to be asking for money for something that didn’t even exist yet, but I went ahead anyway.

To manage the payment process, I signed up for a free trial of Send Owl on recommendation from a friend. They have a great product and amazing service and I can’t recommend them highly enough!

A couple of weeks later, 52 people had parted with 7 of their hard-earned dollars and I had all the motivation I needed to actually get to work on the book.

EU Tax nightmare

About half-way through the writing process, I started to hear a lot of chatter online about new tax rules coming in to force in the EU. This was all made clear by reading some excellent articles by Rachel Andrew on the subject.

In short, as of January 1 2015, the EU changed the rules about how VAT (value added tax) is calculated on the sale of digital products.

Prior to these changes, VAT was calculated based on the location that the seller was based. Now, the VAT is calculated based on where the customer is based. This sounds like a fairly minor and trivial difference but there’s a huge set of implications.

For a start, across the 28 EU countries there are 10 different rates of VAT - ranging from 17% in Luxembourg to 27% in Hungary. Accounting for this and paying the right amount of tax to the right government sounds like a tax nightmare that I’d never wake up from.

If you’re wondering why a developer is banging on about tax and would like to look at some code instead, here’s a bit of ruby I threw into irb to quickly work out the number of and lowest and highest VAT rates based on this list:

vat_rates = %w[21 20 21 25 19 20 23 21 20 25 23 22 19 21 21 17 27 18 21 20 23 23 24 22 20 24 25 20]
number_of_rates = vat_rates.uniq
highest_rate = vat_rates.max
lowest_rate = vat_rates.min

MOSS to the rescue

Because of the aforementioned tax nightmare, the wise folk who make important decisions decided that the solution to this problem was to create the Mini One Stop Shop (MOSS) scheme.

This enables any purveyor of digital goods to sign up and only have to submit one VAT return to one central place every quarter. From there the people at MOSS would then file all the relevant paperwork with all the relevant tax agencies on behalf of the seller.

This does sound better than the original idea of submitting 28 VAT returns every 3 months (even if I made no further sales to any of those member countries). But it’s still a mountain of extra paperwork and red-tape and I’d have to do this on top of my other UK company VAT return too.

Plan C

The third option which circumvents this whole issue is to just not sell digital products to people resident in the EU outside of the UK. While this is the simplest approach (and the one that I’ve settled on for now) it’s far from ideal as I have to turn away many potential customers.

I’ve had a good handful of people tweet at me and email saying they would really like a copy of the book but they’re unable to buy it through the website. The whole thing is a freakin pain in the ass.

I had a good chat with a couple of people who said words to the effect of “not to worry, I’ve got a friend in the UK, I’ll just get them to buy it for me”! This is madness but I’m really humbled that people were willing to inconvenience themselves to grab a copy of my CSS ebook!

A loop hole

But wait, it gets better - albeit more ridiculous.

As I was casually browsing through some HMRC VAT documentation the other day - as you do - I came across something that looked promising.

The new legislation only covers the sale of “electronically supplied” products which is a bit of a broad term. A section of this document about the place of supply rules aims to clarify what this means:

In practice, this can be either:

where the sale of the digital content is entirely automatic eg, a consumer clicks the ‘Buy Now’ button on a website and either: the content downloads onto the consumer’s device [or] the consumer receives an automated e-mail containing the content

Damn. That’s exactly what I do through the Send Owl service.

But wait, there’s more. The document continues and provides a table of “examples of electronic supplies and whether or not they are digital services”.

The first thing on the list is this:

PDF document manually emailed by seller: e-service? Yes Electronically supplied? No Covered by the new rules? No

So hang on a minute, if I just take payment manually by PayPal and email someone a PDF, then I can do that without a load of paperwork and forms to fill in? Awesome.

But how ridiculous!

This whole change to the place of supply rules have come about because massive companies like Amazon base themselves in countries like Luxembourg to reduce the tax they have to pay. But Amazon has systems and lawyers and smart people that will skirt around all these new rules eventually.

The small digital agency or freelancer will be the ones hit-hard by all this nonsense but I really hope that doesn’t discourage all the dedicated people out there who are producing awesome stuff.

I also hope that I’ve read the documentation correctly. I’m not a tax advisor so please don’t take this post as advice! If anyone has had similar (or different) experience in this area, I’d love to hear from you. Feel free to drop me an email (mail@guyroutledge.co.uk) or shoot me a tweet @guyroutledge to keep the conversation going.

If you hate email but still want to keep in touch, follow me on Twitter.

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