Welcome to my little corner of the blogosphere to share the ups and downs of starting a craft business, with plenty of tips, mishaps and the odd glass of wine!

Monday, 22 December 2014

VAT Rule Changes - VATMOSS and how it will affect Small Businesses

As some of you will already know the EU are changing the VAT (Value Added Tax) rules for Digital Products on the 1st January 2015.

This has proven to be a very complicated change, which means that instead of the VAT being dependent on where the seller is based, the VAT will now be charged at the local rate of the buyer. So if I am based in the UK and I sell to a customer in the UK, I would only charge VAT if my turnover was more than £81,000 (I wish!!) as that is the threshold for the UK. However some countries within the EU do not have a VAT threshold, so as soon as I make even 1 digital sale to someone in an EU country with no threshold (such as Spain or Sweden) I would have to pay VAT on that product.

Not only does this mean that I would be losing out on income, as some of all my EU sales would have to go to the VAT Man, but it is also unbelievably complicated in terms of filing a tax return, the amount of data that needs to be collected and stored about each sale and then there are the dispute issues, such as what if a customer lives in one EU country, but is travelling and makes a purchase whilst in another EU country?

HMRC does not have answers to these questions yet. The likes of Etsy & Craftsy do not have answers to these questions yet. It's nearly the end of December and time is running out to get answers.


I had decided that I would simply stop selling digital patterns on the 31st December 2014, which is a real shame as that was the direction I was trying to push my business towards. It would mean that I cannot grow my business in the way I want to.

However. I have just this morning discovered this from HMRC:

Examples of electronic supplies and whether or not they are ‘digital services’

ServiceE-service?Electronically supplied?Covered by the new rules
Pdf document manually e-mailed by sellerYesNoNo
Pdf document automatically e-mailed by seller’s systemYesYesYes
Pdf document automatically downloaded from siteYesYesYes
Stock photographs available for automatic downloadYesYesYes
Live webinarNoNoNo
On-line course consisting of pre-recorded videos and downloadable pdfsYesYesYes
On-line course consisting of pre-recorded videos and downloadable pdfs plus support from a live tutorYesNoNo
Individually commissioned content sent in digital form e.g. photographs, reports, medical resultsYesNoNo
Link to online content or download sent by manual e-mailYesYesYes
So this does mean that my Craftsy and Pattern Mart shops will have to close on the 31st December 2014 as they do not currently support anything other than automatic downloads.

But the good news is that you will still be able to purchase patterns from my Etsy shop as I will simply be removing the automatic download option and will email the pattern out, in PDF format after it has been purchased.

This means only a tiny bit more work for me, but luckily no increased cost for you or me! Yay!

It's not an ideal solution, but it is a workable solution for now.

If you want to read more about this subject, Rosie Slosek's Blog One Man Band Accounting is very informative and full of useful info and tips on how you can help make a difference.

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I really appreciate all comments made on the blog (it reminds me that I'm not talking to myself!) so just wanted to say thanks for adding your thoughts. Simmi x

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