If you sell digital products like sewing patterns or ebooks online then Christmas 2014 you were likely stressed out about the EU’s changes to the Value Added Tax (VAT) law. Beginning January 1, 2015 all sellers of digital products have to collect VAT from their EU customers. There’s no exemption and no threshold so even very tiny businesses are required to collect and remit the tax. To charge a customer for VAT you have to collect three pieces of information verifying their country of origin and save that information for ten years.
To make it easier to remit the tax the EU set up Mini One Stop Shop (MOSS) so that businesses can pay their quarterly VAT tax bill all in one place rather than to every EU country individually.
After the late December 2014 uproar and scramble to figure out what to do, shouts about VAT quieted down. Some of the larger digital platforms implemented systems to collect and remit VAT on behalf of all of their sellers (Ravelry and, eventually, Etsy – see their statement here) and some left it up to the seller (Craftsy – see their statement here in which they also explain why they don’t have a system in place for sellers to collect sales tax). Some individual sellers closed their shops entirely, others signed up for services like PayHip that manage VAT for you, others registered for VAT and installed plugins to collect it, and others ignored it figuring they were too small to get noticed.
I thought I’d do a little update on how I handled VAT. I registered with HMRC and installed a Taxamo plugin on my WooCommerce shop prior to January 1, 2015 (on Christmas, actually!). I’ve been collecting VAT which has been easy and without trouble. My only issue is that my bookkeeping software recognizes VAT payments as sales tax and there is no way to remedy this except to go in manually and mark them individually. To solve this issue I got this plugin that allows me to download a spreadsheet from WooCommerce of everyone who has actually paid sales tax (very few of my customers) and then mark everyone else as VAT.
In order to pay your VAT bill at the end of each quarter you first file what you owe on the HMRC website. This is fairly easy and takes about 20 minutes. The issue comes when you want to actually pay the bill. You have to make a wire transfer. There is no other payment option – you can’t send a check and there’s no way for U.S. sellers to pay online. The Federal Reserve charges banks a $40 fee for wire transfers and the bank passes that fee onto customers so it cost me $40 to pay my VAT bill of about $100 each quarter. The first three quarters I was charged an additional wire transfer fee by the intermediary bank as well! After alerting HMRC about this they gave me the code “OUR” to use to avoid the second fee.
There remains some question about whether collecting VAT is enforceable. There’s an argument that the EU doesn’t have tax enforcement jurisdiction over companies that do not have a presence in the EU and therefore can’t actually enforce the law. It’s hard to know if this is true or not.
I do my best to be law-abiding, but I will say that it feels like an undue burden for businesses the size of mine. As I stood at my local bank yesterday paying my VAT bill my favorite bank teller, Susan, looked up at me and said, “Can’t you just write them a check?” That would surely be easier.
If you’ve handled it differently and are willing to share what you’ve done or if you just want to commiserate, please do!