From the start of 2015, whenever you sell software, licences, or other digital stuff online direct to a customer in the EU, you have to make a reliable record of where they live and then pay VAT at their country’s rate.
There is no threshold for minimum value or sale quantity, and it doesn’t matter where you’re based, only where the customer lives.
The requirements for record-keeping are quite strict, asking for two pieces of evidence about the location of each customer, to be held by the business for ten years.
This is a particularly nasty shock for vendors in the UK because until now the UK has had a high threshold for sales below which you don’t need to register to pay VAT at all. (Currently it is £81,000 per year.) Sole traders and “microbusinesses” in the UK generally haven’t bothered to register for VAT and, because the regulations previously calculated VAT from the country the vendor was based in, this sufficed for small UK-based vendors across the whole EU.
But now if you sell digital goods directly to other people or businesses elsewhere in the EU — directly, not through one of the major app or ebook stores, which handle VAT for you — you’ll need to register, and quickly.
This will be a problem for me because in my spare time I run a tiny, tiny company with a tiny, tiny turnover which sells consumer software (both direct and through app stores) and software library licences. I do my own accounting because it doesn’t bring in enough to pay an accountant. (Also I think everyone should know how to do double-entry and I wanted to learn it myself.) I like the idea of having something in hand, and I want to stay in touch with the mechanics of making and selling software, so I want to keep it going.
Having to register for VAT, figure out how to charge the correct amount for each individual country, and submit extra returns and payments for every little sale I make — it’s going to be a pain in the arse for me, and in fact I don’t even know how to get the necessary duplicate address records using the sales platform I use at the moment, but at least I’m not depending on getting it right for a living as a lot of small UK vendors of digital creative goods will be.
(The alternative, of denying all sales to customers elsewhere in the EU, also appears tricky to implement reliably.)
There are advantages of registering for VAT, principally that you can avoid or reclaim VAT paid on expenses for your company. But that also involves paperwork and, if your company is very small, the value lost to the paperwork might be more than that reclaimed.
As I write this, the government pages about VAT registration have fuck-all about the fact that the £81K VAT registration threshold will disappear in six weeks’ time for a lot of very small businesses. Did HMRC imagine that only big companies would be affected?
- VAT: supplying digital services and the VAT Mini One Stop Shop
- VAT on electronic services
- The horrible implications of the EU VAT “Place of Supply” change
- New EU VAT rules change the game for digital businesses
- London’s thriving tech sector is under threat – from bonkers EU VAT reforms — kind of useful, but I still hate articles using the word “bonkers” for stuff like this. Idiots.