Today, I have a different kind of post. It’s about a tax change that is happening in the European Union on the 1st of Jan 2015. Wait! Don’t fall asleep just yet – hear me out because it potentially affects all of you and could be catastrophic for the crafting/sewing community. Even if you are outside of Europe. Please note that I am not a tax expert, this is my interpretation of the application of the rules based on a lot of research. Also, some aspects still require further clarification.
What is happening is that VAT (sales tax) on digital products will now have to be paid where the buyer is located – instead of where the seller is based. It’s designed to catch big companies like Amazon that base themselves in countries with low VAT rates. Sounds like a good idea, right? But incredibly the EU commission has decided that there will be no lower threshold on income before you have to implement this. Yes, if you sell just one PDF pattern for $10 to an EU country, you have to pay the VAT to that country. Unless you want to register in all EU countries you sell to (and file returns in all the different languages) you have to register for VAT in your own country and continue to file quarterly VAT returns. Those outside of Europe can register with HMRC’s non-union VAT MOSS scheme in the UK.
I know what you are thinking if you are outside the EU – that this doesn’t affect you. But actually the EU are trying to apply it to everyone. How can they enforce it? Well, we don’t know how much enforcement there will be yet but the US signed a treaty with the EU in 2003 which agreed to enforce each others tax regimes. This is enough to make many US designers say they will not sell to the EU any more!
If you live in the EU, next year you could find a lot of non-EU websites refusing to sell their digital products to you (PDF patterns, training courses etc).
It doesn’t only affect digital sales – applying this to digital sales is only a pilot for applying it to physical goods too – possibly as soon as 2016. This means that if you are in the EU you may find that many US companies will not sell or ship items to the EU because they don’t want to risk being liable for VAT, however small the chances of enforcement are.
If you use a marketplaces like Etsy and Craftsy then in theory the marketplace is the one liable for the VAT – not the designers. However, neither of those platforms has admitted liability yet and so many users of the platform do not want to risk it and will cease selling on the 1st of January.
Even worse – the law requires sellers to store two items of non-contradictory evidence of the buyers location for 10 years. Impossible for many sellers with limited IT skills.
So how am I dealing with this? If you didn’t know, I am based in the UK. I have the ability and resources to make the necessary changes to my website and will register for VAT. I intend to keep the price the same for everyone and just be less profitable when selling to EU countries. HMRC have clarified that the standard UK VAT threshold will apply to sales I make in the UK but I will still have to comply to the new rules for any sales in the rest of the EU. Unfortunately, I know of many small scale designers that are planning to give up selling because of these rules.
It affects all of us even if you don’t sell crafts or patterns because it reduces the choice of patterns available and kills fledgling businesses before they have a chance to grow into bigger businesses. It’s an unfair law, and instead of penalising the big companies that it was targeting it actually drives people to have to use third-party platforms instead of their own websites. It is a little ironic that it will create more business for Amazon.
Want more information? This facebook post has all the details and links.
What can you do?
- Sign this petition and this petition.
- Join the planned twitter storm this Tuesday (16th December 2014).
- Join this facebook group where there are some great people organising opposition.
- If you sell digital products, complete this survey.
- If you are in the EU, write or email your MEP (although the EU commission is unelected – they are appointed by the MEPs).
- If you are outside the EU write to your senator or equivalent – most are unaware of these changes and how they will affect their citizens. The US government in particular could put a lot of pressure on the EU if they choose to.
Thanks for listening!