New EU VAT Rules 1-Jan-15 #VATMOSS #VATMESS #EUVAT

Global effect, not just EU

[Frank_Rizzo]

1st Jan 2015 new EU rules on VAT (Value Added Tax) come into play.

From that date if you make an e-sale (digital download, webinar, online course, e-book etc.) to any EU customer you have to register for VAT in that country and pay the tax.

That's quite shocking itself as it means you have to register for and administer for *every* EU country you trade with, which is a red tape nightmare.

UK VATMOSS
To ease the pain for us small time e-tailers (who are not already VAT registered) Her Majesty's Revenue and Customs have created a new scheme called VATMOSS. This means that we only have to register once (in the UK) and pay the taxes here ...

But wait. This means that you now have to pay VAT on ALL your sales, even if you are below the VAT Threshold (£81,000).

This is terrible. An online business selling digital services to UK customers and turning over £80,000 does not have to register for or pay VAT at all. But if they make one sale to any other EU country (even for just £1) they now have to pay the VAT on the full £80,000 !

Spying By the Vat Door
And it gets worse. You now have to record a ridiculous amount of information on your customers. You now how to record for 10 years:

* Full Address of customer
* IP Address
* Location of Bank
* Country code of SIM card used by the customer
* Location of customers fixed Land Line
* Product codes, which link the purchases to the customer

[Frank_Rizzo]

Add to this total mess the Traveller Paradox.

A French person travells to Ireland via British Channel Tunnel and then a Ferry from Wales to Ireland. Using their mobile phone they download an e-book from your website...

You now have to work out (via IP addresses, home addresses) which country you have to pay VAT on. It will be determined by whether the customer purchased your ebook in Calais, Dover, or Cork (France, GB, Ireland).

What an awful mess this is.

So the answer for smaller, non VAT registered sites is to totally block sales from EU customers. So how can you do that effectively?

[Leosghost]

Godaddy and Hostgator and many others have been charging VAT on sales of domain names and hosting to EU citizens for years now..

I do agree that EU VAT rates should be (should have been ) harmonised ( same item or service, same pan EU VAT rate ) many years ago..

[Leosghost]

Interestingly, French "e-tailers" ( if they are trading as "autoentrepreneurs" and thus do not have to register for VAT if they trade below the French VAT thresholds, which are lower than those in the UK ) will not have to charge VAT when they sell to French customers, or to customers in other EU countries..
This according to a highly placed friend in the French tax authorities..who also has always described the EU non harmonised VAT laws as "shambolic" ( here the word used is more "earthy"; )..But, as he says..if the politicians sniff an opportunity to get more tax monies..that may change..

A little comfort..it could be worse ..all EU businesses could be required to charge all worldwide customers at the customer's local sales tax rates ( the USA has different sales tax rates for almost every street corner business it seems in some places )..I know..I shouldn't give them ideas..

[engine]

Thanks for posting this info, Frank_Rizzo.

Originally aimed at catching the bigger business dodging VAT, it seems that the bureaucrats did not consult adequately.

This is, indeed, a complete #VATMESS especially for small traders, and many may simply not have a business at the end of it.

[bhukkel]

Are there any payment providers with a solution? Ideal i would give my payment provider an ex VAT price and they calculate the VAT based on the location and take care of the registration.

[Leosghost]

Paypal ?..maybe ?..

[bhukkel]

Paypal..no not for API based payments.

[Leosghost]

One way would be to show pricing as "ex VAT" and then use GEO sniffing to add VAT ( depending on what the GEO IP base says is the country of the customer ) but even with the best ( IME ) paid solution Maxmind ( which I use ) you may still wrongly attribute the country of your visitor ( AOL plays havoc with IP sniffing in Europe )..or show prices as "ex VAT"..and ,as the customer progresses through the cart, base your VAT applied upon what they put in the "country" field of your cart..

Might mean adding a page to your checkout just to catch and apply this data ..

The ridiculous thing about all of this, is that within the EU..( selling to other businesses or individuals within the EU ) we all pay and charge VAT based upon the EU country of the merchant who is doing the selling..

[ronin]

if they make one sale to any other EU country (even for just £1) they now have to pay the VAT on the full £80,000!

Well, yes - but I thought the biggest advantage of registering to pass on VAT on your business sales to HMRC is that you then also no longer have to pay VAT on your business purchases.

So all your business purchases which include VAT will now be 1/6 less expensive, no?

Someone tell me if I have this wrong.

[piatkow]

So all your business purchases which include VAT will now be 1/6 less expensive, no?

That is my understaning from the rules when it was introduced in 1973 but, thankfully, I haven't needed to keep up with changes since.

[Leosghost]

However, that would also mean that all e-goods and e-services supplied to both UK internal markets and external markets from the UK's formerly VAT exempt suppliers of such goods and services would become 20% more expensive..Plus the formerly exempt businesses would have to begin VAT accounting, change all their stationery etc ( VAT numbers must be displayed on all stationary ) and websites..and all websites would have to reflect VAT..

Do they all know ?

Adsense is technically an e-service, would this mean that UK adsense publishers would have to charge VAT to G, or website owners liable to charge VAT to anyone to whom they sell adspace..?

Might also ( if HMRC decide that it applies to them ) make website design / coding services etc 20% more expensive..and thus uncompetitive..

[Frank_Rizzo]

Yes that is the case with my main site. If this site is liable for VATMOSS (there is some confusion over 'pay to view' subscription sites) then the outlook looks bleak.

We keep under the VAT threshold so a) do not charge VAT, b) do not claim it on purchases.

Our running costs are very low. With only outputs being hosting and accounts fee = not much.

But if we were to make one sale to another EU country (even for £5) then our whole income is subject to VAT. I estimate this will cost us £14,000 and would thus ruin that business.

Options
1. Add VAT to our prices to compensate.
We would then have to price hike 20% and that would mean we lose a lot of customers and thus diminish the turnover and also ruin the business.

2. Only allow UK and non EU customers.
We do have customers in France, Germany, Finland and we also have expats residing in Spain. Sometimes UK customers renew their subscriptions whilst on holiday in the EU. We also have a lot of Irish subscribers (possibly 20% of the trade). We would thus have to block these and lose sales with the potential to ruin the business.

3. Register for VAT in each EU state that we trade with. I would have to find out how to register for VAT in Spain, then Ireland, then France ... then Slowakia ... a red tape nightmare.

The other issue with VATMOSS is the record keeping and the forcing of complying with the ICO for DPA purposes.

At the moment we don't have to register with the ICO (and pay their skim) because we don't record personal information. As the site is subscription based all is required is a username and email. The name is not the persons real name and all checks / handling are done by the payment processor. Thus we don't have to comply with the DPA.

But with VATMOSS we would be required to record names, addresses, IPs, SIM information. This is a huge burden and would indeed require registering for the ICO.

In otherwords: the increased administration that would be required to identify, record and store that information, plus the fact that we would have to register with the ICO and put into practice their minimum DP procedures will also increase costs. We would thus have to charge around 40% more than what we do now to just cover the VAT and extra costs and this would certainly shut the business down.

[Leosghost]

Are you certain that you cannot simply* register for VAT within the UK only, get a UK VAT number, and then do as other UK registered for VAT businesses have done since the system began ( and how business that are VAT registered in each country of the EU operate ) charge customers from other EU countries based upon the ( your ) UK VAT rate ?

*I say "simply" , I appreciate the extra paperwork and price rises and ICO etc issues, but it seems insane that you would have to charge VAT based upon the place of purchase of your customer with the EU..If that happens it would also logically apply to all EU businesses, we would all have to be registered in each of the28 countries, and charge 28 different rates..

That would kill cross border e-business overnight in the EU..

[Leosghost]

Oh Dear..It is insane..
I just researched this after posting the above.and found the following article..
[theguardian.com...]

And additional info about the customer details problems that also appears to contradict what HMRC say re "splitting" your business into VAT registered, for EU sales and non VAT registered for within the same country sales..

Plus an interesting explanation about how this affects people / businesses from outside the EU selling into the EU..couldn't find anywhere else mentioning this last point ..hopefully the link will be OK ? as it is not a major news source like the Grauniad..
[econsultancy.com...]

I wonder if this is not, as frequently happens, the UK applying the strict letter of the law, whilst some other EU countries ( like the one I live in, France ) "fudge" around, or ignore it so as to not apply it's worst aspects to their businesses or citizens..

If I'm reading this correctly..this would affect all website owners who sell adspace /adsense publishers ( and possibly affiliate marketers ) not currently registered for VAT ( both based in the EU and outside it, if they sell to EU companies or citizens ), as they are technically selling ad space ( to G and others )..and ad space on a website may well be considered to be digital goods or services..

[Frank_Rizzo]

This is the stupidity of it. Two companies, both online, both have exactly the same turnover: £80,000 p.a.

ACME 1 sells PDF files and sends them out via digital download.
ACME 2 sells PDF files but prints them out and posts them via land mail.

Neither company is liable for VAT because they are under the VAT threshold. Both companies 'earn' £80,000

Now on 1-Jan-15 ACME 1 sells a £1 PDF file to a French customer. If registered for VATMOSS the whole £80,000 income is now liable for VAT and thus ACME 1 has to pay HMRC £16,000 (minus small amount claimed from input purchases).

ACME 2, however, is not liable for this and thus keeps the full £80,000 income.

ACME 1 has no option but to increase costs by 20%+, restrict sales to EU, or register for VAT with all countries in the EU. ACME 2 therefore has a huge advantage over ACME 1 and ACME 1 ultimately folds.

[ronin]

In an age of near-ubiquitous telecommunication, VAT has never made much sense to me anyway.

Producer charges sale price + VAT to Wholesaler
Wholesaler charges sale price + VAT to B2B Merchant
B2B Merchant charges sale price + VAT to B2C Merchant
B2C Merchant charges sale price + VAT to Customer

And apart from the VAT collected by the B2C Merchant from the customer and then forwarded to HMRC (not by the customer, but by the B2C Merchant), everyone diligently writes down that they've collected the VAT from the next person in the chain but then cancels it out by writing down that they've already paid the same VAT to the previous person in the chain.

It's not exactly a model of efficiency, is it?

Can't the Producer collect the VAT from the Wholesaler and forward that to HMRC, so that the rest of the transaction-chain is liberated from charging and accounting for VAT payments and receipts?

Someone tell me if I have this wrong.

[Leosghost]

Someone tell me if I have this wrong.

Slightly..Your idea makes perfect sense..but..

The thing is VAT is a proportion of the non VAT price, so the actual monetary value of VAT collected and passed to government goes up with each step of the process..and only the consumer actually pays it without being able to recover it..
So the entire chain has to happen, or the Governments don't get their money..VAT income is higher in every EU country than the tax revenue from income tax and all other taxes combined..So they are not going to give up VAT, not simplify ( because they cannot ) the collection / reclamation procedures..

The fact that it is incredibly complex doesn't worry them, because
a) the businesses bear the burden of the collection and the reclamation proceedures..
b) it keeps very many civil servants in jobs..
c) Legislators tend to be drawn from the ranks of civil servants ( especially in France ) and lawyers..who are not going to abolish their colleagues jobs.
d) with so many people in each country ( here in France it is 7.5 million of a workforce of 21 million ) being civil servants..plus those retired people who are were civil servants ( about 6 million )..no politician is going to alienate such large groups of voters ..

The results of general / presidential elections across the 3 main EU economies ( UK, France, Germany ) depend on ( in each of the three countries ) getting only around 4 million votes to win..
General /presidential elections are basically won by whomever gets the civil service ( and retired civil servants ) vote..especially in France..usual EU voter "turnout" is less than 45 % of those eligible to vote..( in France , UK and Germany the number of those eligible to vote, is less than 25 million in each country..in France it is 20.7 million..which is about the same as the total workforce, including civil servants )..So legislation ( here at least , is made to please the 7.5 million+the 6 million = over 60% of eligible voters ) is formulated / passed with pleasing these voters in mind.. similar "political maths" applies to the UK and Germany..and many other countries..all parties and most civil servants know this..

( the above has nothing to do with what people think of as "politics"..it is just the way legislation is.. small business, whatever the political ideas of their owners can no more change it than they can change the weather, they just have to cope with it, as they have to cope with the weather )

The "math" is simple..the small business owners votes ( numbers ) count for nothing compared to the civil servants ( and retired civil servants ) votes ( numbers ) and the brib^^^lobbying of politicians by big business..

[Leosghost]

Ok, long conversation with a friend at the French tax authorities..and another at the dept in France that deals with businesses and small businesses and what you call,"sole trader" and or "single proprietor" limited companies etc in particular.

France has indeed "fudged" this for small businesses who are below the normal VAT threshold here..Usually these are "autoentrepreneur"..which is the "statut" of very webmasters, and very many adsense "publishers" in France..
If this is your case ( WebmasterWorld does have some other members based in France, many of whom are "ex pats" , many of whom do not read French ( especially legal French ) fluently..so the following may help them..

They must register with the tax authorities ( and charge VAT/TVA ) if they sell digital services or digital goods to individuals or businesses based outside France ( but within the EU ) like Ireland or the UK or Germany etc..
This includes the "space" that they "sell " to G ( who are based in Ireland ) for the placement of adsense, or any other ad space or affiliate services or digital goods ..

French government official explanation here ( in English )..it doesn't mention adspace or adsense or affs, but they assure me that those ( along with many other things not mentioned ) are covered by the changes in EU VAT / TVA law..
[www2.impots.gouv.fr...]

They can create their "espace pro" here
[inscriptionpro.impots.gouv.fr...]

..sorry this "inscription" page only exists in French ( I can translate it later, when I have more time available, if anyone needs )..but it should be self explanatory :)..inscription is free, this is the official French governement "portal"..

Invoicing as an "autoentrepreneur" using this ""mini-guichet-unique" system ( the French version of MOSS ) does not mean that they will enter fully into the VAT / TVA system, they will not invoice VAT/TVA to any French based customers ( even for electronic goods or services )..nor will they be able to reclaim any VAT/TVA they pay or may have paid ( whether it is paid outside France or inside France, and whether the goods or services that they paid for are "digital" or not ) thus simplifying their accounting..
this will not affect their "statut" of "autoentrepreneur" ..ie; they will not be obliged to change "regime" and become an SARL or whatever, providing they still fulfill all other "autoentrepreneur" conditions..

They can get an EU VAT/TVA number from the French government website ( via their "espace pro" )..or by visiting their local French tax office, the one which deals with businesses, not the one which deals with individuals ( particuliers )..

Hope this helps any French members..sorry that it will be no comfort for Frank the OP or other members based in the UK or possibly other countries ..

Please note..I can't help out on this kind of stuff via stickies, last time I did , it cost me and Mme "Leosghost", hundreds of hours, and hundreds( if not thousands ) of Euros in "lost time", and very many phone calls and letters on behalf of a member who had problems with the administration in France and needed translations and technical help..

ps..My apologies to Frank for somewhat hi-jacking his thread..

PPS .I suppose that all EU adsense publishers can expect to be asked for their EU VAT / TVA number from G before they receive their next adsense payments, as without it , G would be unable to reclaim the VAT/TVA which their payments include.this is presuming that they ,G,will say that their payouts ( which technically the tax ruling is that we are charging them, G..and not them paying us ) include VAT/TVA..if they said that their payments fro adsense do not include VAT/TVA they would have to payout more than they do at present, and they would still need a VAT/TVA number from all EU publishers..

Other ad companies which we sell adspace to will require the same VAT/TVA registration numbers from EU publishers, as will aff' and ad agencies etc etc..including Amazon ( for those running Amazon ads ).."interesting times"..

Shambolic is waaay too kind a description..

[burcot]

I would have to find out how to register for VAT in Spain, then Ireland, then France ... then Slowakia ... a red tape nightmare.

There is a one stop registration facility in the UK

[gov.uk...]

Hopefully other countries will have a similar service available

[Frank_Rizzo]

Ahh burcot you are not reading the full issue here.

The one stop shop (VATMOSS) is bad.

It has no VAT threshold, which means that make a £1 sale to EU and your whole £80,000 income is reduced by 20% (whilst a bricks and mortar store keeps the whole £80,000).

VATMOSS requires extensive recording of user data (whilst bricks and mortar stores do not).

[PCInk]

I can imagine some companies splitting into two for tax reasons. One VAT registered for EU sales only and the other for UK/local sales.

[Essex_boy]

If the UK stopped charging VAT, id love to know what the affect it would have on the economy ! Boom times ?

[aakk9999]

What a mess. What if you purchase via proxy? How would you know where they were if the proxy says USA....?

[Leosghost]

What a mess. What if you purchase via proxy? How would you know where they were if the proxy says USA....?

Everyone is going to have to try to "sniff" proxied headers..( still not fool proof ) and of course all the micro business working from their kitchen tables know how to do such things..

That is also where the AOL problem rears it's head, the same AOL EU continental user, can show up as a French IP, a German IP or a UK IP .

The UK idea is supposedly to use two different methods if deciding the country of the customer..one may be the IP..the other may be the credit card address or physical address..But having read the UK situation the way the Paypal system works will mean that if Paypal is used ( as many micro businesses do )..the seller will not know that level of detail about the the customer..

The 10 year data retention aspect is going to be a nightmare..

The UK decision to make all the business's sales subject to VAT is really bizarre..

If the UK stopped charging VAT, id love to know what the affect it would have on the economy ! Boom times ?

The UK economy would fall over immediately..VAT takes in more money than all other taxes, including income tax and company taxes etc..same thing applies in most, if not all, other EU countries..

[Frank_Rizzo]

I think I am wrong (thankfully) in one statement I made.

Even though the new EU VAT threshold for cross border B2C is £0 (it is £81,000 in UK) you do not have to pay the full VAT on all your UK sales. Only the sales to the non UK EU countries (cross border) will attract VAT.

So if your UK income is £80,000 and your sales in Spain, France, Greece is just £100 then you only pay VAT on the £100. However: this implies that you go along the route of registering separately for VAT in each member country, which is hassle. The alternative is to register for VATMOSS in the UK but that will mean your whole £80,000 is now liable for UK VAT.

This is way too much hassle for me to comply with - and I can see the serious problem for the kitchen table traders. So the path I am going to take is this:

1. Allow trade within the UK. But do not charge VAT for UK customers (because income is below the £81,000 threshold)
2. Only allow non UK EU customers from Ireland ONLY (because we trade with a lot of Irish customers)
3. Charge Ireland customers VAT at the current Irish VAT rate, do the paperwork, pay the taxes to Ireland.

This now presents it's own problems but IMO it's way easier than VATMOSS and much more simplified than having to register for VAT in Greece, Slovakia ...

Raise The Portcullis
So how do I detect that the customer is British or Irish only? How do I totally stop French, Spanish, Italian customers from subscribing?

* Do I put up a huge notice saying "We are unable to trade with France".
* Do I ask the customer to specifically state what country they are at?
* Do I have to use GEOIP to identify where the customer is at and send them to /dev/null rather than the payment page?

Now what happens if a French customer does subscribe even though I have taken reasonable steps to prevent them? I would then not be VAT compliance for France and they then have the right to fine me thousands of Euros. This is pure awful.

[Frank_Rizzo]

Reading a lot of articles and Q&A on VATMOSS I think I may be exempt.

There is a flowchart provided by HMRC (VAT: Supplying Digita Serves and The Mini One Stop Shop (MOSS)

"Do you supply digital services - broadcasting, telecommunications or e-services, for example video on demand, downloaded apps, musci downloads, gaming, e-books, anti-virus software or online auctions where the service is automated?

On that exact question I can answer NO and thus "The rule changes don't apply to you".

So following that flowchart exactly I would be exempt and don't have to worry about this nonsense. But other resources do state that an online subscription site like mine would not be exempt.

[zarathustra2011]

I'm more than just a little confused by it all, especially as I am only just learning about it only to discover things are going ahead in 3 weeks or so!

Just a question - with a basic Adsense account for a micro-business, is this not a B2B endeavour, so that Google then sorts out the VAT owed, as opposed to B2C. A lot of people selling digital services do so through third parties like Amazon, which should take out some of the complications that will inevitably arise. I wondered if it would not be the same with Google?
If I understood any of it correctly, I can't imagine documenting each click, the ad in question and the advertisers country of origin, and storing that with all the other information that is required, then filing for MOSS, sending off quarterly zero VAT returns, but paying VAT rates on any part of the business that is not electronic service based simply because I signed up to MOSS. I can't imagine too, bypassing MOSS and trying to sign up with every EU country a service has been sold to. It's thoroughly confusing me (which isn't that difficult).

I thought all this was implemented to prevent big companies using countries like Luxembourg as tax havens. Why drag tiny micro-businesses into it - I appreciate this is an EU directive, but it seems to be poorly conceived and poorly advertised.

[Frank_Rizzo]

You are not alone zarathustra2011. Even accountants are confused.

This was indeed designed to stop big companies abusing the different VAT levels but as usual: bureaucrats that have no idea of technology, who possibly took advice from technocrats that have no idea of bureaucracy, came up with this mess.

So many people have now said they are going to close down in the new year. Many will be forced to trade with third party sites such as Amazon. That is so ironic!

This week HRMC clarified a few points but it's still not right. Too many small businesses will be ruined by this and something needs to be done.

I still think the vast majority of businesses do not even know about this. The word has just not got around.

HMRC are still refusing to admit they only consulted with big business and are doing nothing to address the issue.

Some campaigners are starting to get heard in media. Local newspapers are taking up the issue as is BBC Radio 4. It's a start but the main news channels need to take this up too. It so sad that so many businesses do not know about this and yet after February the 10th they could get a knock on the door from HMRC VAT, or the Polish Tax Administration.

Action
1. Keep up to date via the #VATMOSS tag and [euvataction.org...]
2. Sign the new EU petition (via euvataction)
3. If you are in the UK write to your MP, your MEPs, and Vince Cable via DBIS (the writetothem.com site simplifies this process)
4. Ask your local newspaper to highlight the problem to your business
5. Tell your customers! Ask them to do 2. at least

Data Protection
One misleading piece of information HMRC gave out this week is that as you have to record PI for 10 years you have to comply with DPA and register at the ICO site. This is so not true.

The ICO site states that if you are only keeping names, addresses, emails for admin purposes then you do not have to register at all. This is something businesses not affected by VAT should adhere. You really don't need to do this if the purpose is purely for record keeping.

Future
The new VAT rules are for downloads / services at the moment. But they have stated this will soon be rolled out to all types of selling in the EU. It is us download software / e-books / service sites first, physical products next.

What are the US going to do about this? What if the US tax authorities decided it's a big money earner and start charging EU traders individual state's sales tax?

[edited by: Frank_Rizzo at 10:45 am (utc) on Dec 13, 2014]

[RonPK]

@Frank I'm in .nl where there is no VAT threshold. If I would be selling the same product as you to someone in France, I'd have to add 21% Dutch VAT to the price. You don't charge VAT, which gives you quite an advantage. So this change (both of us charging French VAT) creates a level playing field, tax-wise.