Purely by chance I recently came across a mention of a significant change to the EU VAT rules which apply from 1st Jan 2015, to anyone supplying digital services (as defined by the EU). This includes such services as website building, hosting, digital music downloads, digital patterns, ebooks, apps, computer games, and more, and is, so it claims, just a part of the EU's move towards a Digital Single Market.
You might think that, as a registered self-employed person who pays National Insurance and completes an annual tax return to the HMRC, I should have know of this already. "But how?" I ask. Not one word have I received from HMRC to advise me that the VAT rules for digital supply across borders was to change this year. Not one letter or leaflet did I have, not one email did I get, nothing, nada, zilch! But despite this knowledge void I am expected to comply with the new rules should I make such digital sales.
As it happens, I do not currently make them, but I had planned to. Those plans are now scuppered. Ebooks, digital scripts, mp3 music, digital patterns are all scrapped as I cannot legally sell them within the EU but outside the UK without charging VAT at the rate in force in the buyer's country. And I have to prove that I have confirmed that the buyer's country claim is accurate, and have not one, but two, independent pieces of evidence to prove it. And, I have to retain that evidence in a secure location for 10 years, having first registered with the data protection office (and paid their fee) so I can hold the data. So many hoops to jump through!!!
Now it seems to me that it should not have been beyond the capability of the UK government and HMRC to tell me about the changes, especially as my business is currently below the UK VAT threshold, so I have no need to go poke around on their website looking for info I did not know I needed to know! (You might notice that this info was published there on 29th December, 2014 - just 3 days before it came into force!) They even have a handy-dandy flowchart, so you can see if you need to panic or not!
I have heard that businesses who are VAT registered were told in advance (although I don't know how far in advance), which is interesting, as the change affects all businesses who supply digital products across borders within the EU, not just those whose income is above the UK threshold. In fact for cross-border sales there is no threshold! If you sell a digital product for a penny you must register for VAT and charge VAT on the sale. How mad is that?!
The EU VAT changes seem to have been in the pipeline for some time, with some EU sources stating that we have had 6 years to prepare for this so we should not be complaining that we are not ready! The fact is that, although the EU has been discussing this for 6 years, detailed guidance on what it means for businesses was only produced very late in 2014, and that many of us still have not been told of the change by any official body, nor have we had any advice or guidance about it.
The huge change (probably the biggest to the VAT system since it was introduced into the UK) is having a disproportionate effect on sole traders, nano- and micro-businesses, with many of them not being able to comply so they are ceasing trading, or some are carrying on trading in blissful ignorance that they are trading illegally and could be severely penalised when the VAT folks catch up with them. Larger businesses, and those which are currently VAT registered are probably more able to cope with the changes to the rules, but those of us who have never dealt with VAT are at a serious disadvantage and many simply will not survive the process.
There is a campaign (EU VAT Action) to try and get the situation sorted out before small businesses fold, which would cause untold hardship to many who earn small but vital incomes from such businesses. There are also two groups on Facebook - one public (open to view with joining) and one closed (join to read content) - which have lots of information about the changes, how they affect small businesses and where advice may be sought and issued raised. We can also write to our MPs and MEPs expressing concerns, raising individual cases and experiences and adding our voices to the campaign - I am doing this, how about you?