VAT on ebooks
November 25, 2014As it says on my twitter bio, I’m
By day, PhD Law student researching tax simplification and better regulation; by night, writer of science fiction and fantasy.
so today my Facebook and twitter feeds are suddenly full of people from the science fiction side of my life talking about tax. Why? Well, take a look at the hashtags #VATMOSS and #VATMESS.
Essentially from January the loophole that lets Amazon avoid charging VAT on e-books has been closed. VAT will now apply at the rate applicable where the customer is located, and not at the place where the business selling them an ebook has been registered.
Except…
Except what about all of those authors who make a few quid selling their back catalogue as ebooks? Do they have to register for VAT in France just because someone in their holiday home in Normandy logs on and downloads a single copy of their ebook for some poolside entertainment?
Ah, says HMRC, we’ve thought of that. There’s a thing called the “mini one stop shop” – MOSS – which means you can register for VAT in just one country, the UK, and pay your French and German and Italian and Spanish VAT direct to the UK every quarter.
Wait a minute, though. Doesn’t the UK have the highest VAT registration rate in Europe (£81,000) so they won’t have to worry about it till they are in the Big Seller Who Can Afford An Accountant category, right?
Wrong. The MOSS threshold is zero. Yup. Any european sales and you have to register, make returns, keep records…
Now there are two issues here (yes, I know, there are dozens, but there are two that I want to highlight)
First of all, does the MOSS zero threshold apply to ALL sales, or just to MOSS-eligible sales (i.e. to business-to-consumer sales in European countries other than the UK)? In other words, does selling the odd ebook to someone in the EU mean you have to start charging and accounting for VAT on all your sales, to everyone, for ever?
Secondly…. well, I’m a retired tax inspector. I Speak Tax (up to a point). I have spent some time this morning trying to find out the answer to the first question. Yeah. The HMRC VAT instructions are copious, but incredibly badly written. (You don’t believe me? Try this page and then tell me whether MOSS sales and non-MOSS sales go on the same return?) The blogosphere and commentariat suggest the sky will fall on the heads of small business and HMRC sounds utterly clueless and complacent. The Guardian’s small business network has a piece which includes a quote from HMRC which seems to answer my question:
A spokesperson for HMRC says the changes should only have a “small effect on administrative burdens.”
“Although a business needs to have a UK VAT registration number before it can register for the Mini One Stop Shop (MOSS) online service, provided it separates the cross-border part of its digital services business from the domestic part, it can voluntarily register for VAT on the cross-border business only.”
Which seems clear enough, although HOW someone who sells the odd e-book off a web site is supposed to know how to do that is a bit harder to fathom. But the press office are quoted in the same article as saying:
The HMRC spokesperson says that it has provided a “significant amount of information” about the VAT rule changes and MOSS on the GOV.UK website. “We have worked closely with stakeholders and representative bodies to publicise the changes, been involved in various webinars, held a conference that was streamed on the web, and regularly issue Twitter alerts. We have issued regular updates over the last 12 months in the quarterly VAT Notes and we are organising a Twitter clinic that anyone can join to ask questions.”
Really? This is a change which affects micro businesses, the muggles who don’t speak tax and don’t belong to any of your “stakeholder” organisations. It seems to have been badly thought out, badly explained, and badly handled. And now to have come up against an organised set of articulate and well connected tax muggles who aren’t going to stand for any nonsense.
*sits back and fetches popcorn*
tiintax 
It’s slightly off the main stream of your post, but I understand that a number of the big e-commerce sites are shifting their terms of business now so as to become the entity liable for the VAT.
So if a small author wants to sell to a customer in France, they can do so hassle-free so long as they sign up to an appropriate intermediary.
They can then sell directly in the UK quite happily – although they may have trouble demonstrating that their direct and VAT-free customers *are* in the UK (although a card issued by a UK bank, registered to a UK address for the customer, would seem to fit the bill).
Also, on the main stream of your comment: I’m interested by HMRC’s comment that you can voluntarily register only the cross-border part of the business.
I’m not sure how you’d do that: the obvious way would be to have the UK bits in your own name and the cross-border bits via a company or partnership, but I know several commentators have suggested that HMRC might aggregate the businesses if you did that. Hopefully this is an indication that they wouldn’t.
If they let you split the supplies made by a single entity, even better (albeit with a fundamental change in the VAT registration rules…).
A tax muggle knitting pattern designer here: try getting answers out of HMRC you can trust. I know plenty of people who have been told completely different things. Sales of knitting patterns as pdfs are affected. Lots of designers sell from their own sites, but the majority of sales are through a US based site called Ravelry. Problem is the site owner is still insisting that the designers are responsible for the VAT though regulations mean it is possible the site is. Yes he will make some changes to the site, but we are the ones responsible for the VAT. Fall back solution is stopping all sales to the EU through the site. I am unlikely to know until the last minute what solution is in place, and whether I trust the site if I am really the one responsible (I sell so little to the rest of the EU that it isn’t worth considering registering for VAT). And then there is the fallout if it is the site that is liable, and they are contacted by one, never mind numerous EU tax authorities.
Perhaps digital goods should be free and a charge applied to the delivery of such goods. After all, the digital infrastructure required to deliver such products is not free…