Allie Olson is the co-founder of Indiesew, a curated ecommerce site offering “sewing patterns for the modern woman.” With Indiesew Allie and her business partner, Steve Herschleb, are working to promote independent sewing pattern designers and create community among women who love to sew their own clothes.
Allie carefully chooses the designers and patterns that are sold on the site with an eye toward quality, style, and ease of use and Indiesew itself communicates those very traits. Steve coded the site to be both beautiful and intuitive and he’s done an outstanding job. The site is top notch. To be able to code just as good as he is, it would be beneficial for you to learn information such as Mimo vs Sololearn.
Allie Olson and Steve Herschleb, founders of Indiesew, say the site is ready to for the VAT changes beginning January 1.
I’ve had my eye on Indiesew since their launch in May, but last week they really made my head turn when Allie announced that they were now completely prepared to handle the new EU VAT changes. Beginning January 1 everyone selling digital goods online will have to comply with an incredibly complex web of new tax laws applied to customers in the European Union. The changes are deeply concerning for micro businesses like PDF pattern sellers and could potentially be crushing. Several of the big ecommerce platforms have released statements indicating that they’re not prepared to comply including Big Cartel, Squarespace, and Folksy while others haven’t made a statement at all including Etsy, Shopify, and Craftsy.
Yet here was Indiesew, a small company with just two people on staff, fully prepared and ready to go. I got in touch with Allie to ask if she might tell us more about her vision for the site and how she and Steve tackled the VAT challenge so nimbly. Here’s Allie:
Indiesew is a Community of Modern Women Sewing Their Own Clothes
About a year ago, I approached my former classmate and now co-founder Steve, about an idea I had to create an online sewing community. Being a lifelong sewist and recent sewing blogger, I had found the online sewing community to be somewhat disjointed, engaged with a few different sites, but not all congregated on any single platform. This was especially true of the community of modern women sewing their own clothes.
In a few weeks, Steve and I had honed the online sewing community idea into a less polished, albeit strikingly similar, version of the Indiesew you see today. In January of 2014, Steve set to work developing a prototype while I worked on our aesthetic, courted designers and gathered feedback from potential users.
In March, both Steve and I dove in headfirst, and started working on Indiesew fulltime, not accepting any other freelance jobs to distract us from our end goal of making Indiesew a success. It was, and honestly still is, one of the most terrifying decisions I’ve ever made.
By May of 2014, Indiesew was ready to be unveiled and we officially launched to the public on May 20th with about twelve patterns in our shop from four designers. Now, as we’ve just passed our six-month site anniversary we’re featuring nearly 80 patterns from over 30 designers from around the world, and we’re adding several new patterns to the shop every week.
A One-Stop Curated Shop for Digital Patterns
What’s most exciting is that we’ve struck a chord with women who were previously really frustrated with the current options for searching for digital sewing patterns. A one-stop curated shop for sewing patterns was much needed in this sphere, and we’re so happy to provide it. But we’re still working to improve our site and provide more value to our customers. We ask for feedback constantly and are exploring some exciting new channels for our products.
And Then There Was VAT
About a month ago, amid Handmade Holiday planning, we were tipped off to the changes to the Value Added Tax (VAT) procedure that would affect any business that sells digital goods to the EU countries starting on Jan. 1st, 2015. For those not familiar with VAT, it’s similar to sales tax except it gets charged at every step in the supply chain. With sales tax, it’s only charged to the end consumer. Currently, VAT is calculated based on the seller’s location, but starting next year the VAT must be calculated based on the buyer’s location. This means that any business selling digital goods to EU customers must charge VAT and file quarterly VAT returns. Unfortunately, there’s no minimum threshold for small businesses and we must process VAT even if we sell just one pattern to a single EU customer. It became immediately apparent that there was no other option but to deal with the updates and do it quickly.
Currently, only 6% of our sales are to EU customers. But as with every small business, we rely on every single sale to keep us in business for one more day, week, or month. So Steve and I discussed the new policies, looked at some software available to deal with it, and realized that this is something we could deal with in-house, without a problem.
(I should preface this with the fact that Steve is an outstanding developer, and Indiesew is so extremely blessed to have his skills on our team. Without him, we’d likely be paying a company like Taxamo a lot of money to handle the VAT updates for us. Luckily, that’s not the case.)
And MOSS
Thankfully, the EU created the Mini One Stop Shop (MOSS) so that we only have to send our VAT tax returns to one entity instead of to each EU country. We applied for our MOSS application and Steve set to work coding up a new system that would identify a customer’s location based on two or three data points (IP address, billing address, and phone number) and charge the appropriate tax rate. Then if you work with a lot of self-employed people then you should use this software for self-assessment returns, as it makes much easier. The tax rates for each of the 28 EU countries range from 15% to 27%. The new VAT rules come with fairly stringent reporting requirements, so we also had to rework our databases to make sure we collect and save all the required information. Finally, the rules require specific information to be included on our invoices, so we needed to update our online receipts and the ones we email to our customers. In two days, Steve had the new system fully operable and compliant with VAT policies.
Indiesew is VAT Compliant and Ready for January 1, 2015
We’ve notified our designers that we’ll be fully compliant with the VAT updates on January 1st, and a few of them have told us they’ll be sending their EU customers our way. In this instance, our ability to react quickly to changing policies has been entirely beneficial. Because Indiesew is just Steve and I, we’re easily able to sideline other projects for a day or two to take care of something urgent like this. We’re not at a point where our daily operations or our organizational structure inhibit us from implementing new processes immediately and with little pushback from other decision makers.
Being Small Means Being Nimble
I think that’s why companies like Shopify or Etsy might be hesitating in releasing statements on their response to the updates. They are both successful companies but they may have significant organizational inertia that makes it tougher to react quickly to changes like this. Plus, these companies handle ecommerce for many thousands of different sellers that may or may not be affected by the upcoming EU VAT changes. Complying with the VAT reporting requirements alone needed significant changes to our IT system, and I can only assume that it will be much more of a challenge for established companies with more complex systems.
But for every independent maker who sells their items on their own sites with ecommerce plug-ins, or through Etsy or Craftsy, I hope these organizations are working on their own solutions. It’d be tragic for the small maker, who relies on every single sale to support themselves and their families, to shut down their EU sales because they simply don’t have the technical skills or resources to respond to the changes.
No doubt, in time there will be an easy solution. Someone will develop an easy to use plugin to deal with the VAT updates, which I’m sure will be wildly popular. That’s what so great about entrepreneurship, the best solutions are created when a perceived pain is at an all-time high.
I really admire Allie and Steve for taking the bull by the horns and creating a solution that works for their site. I’m hearing stirrings of WordPress plugins in the words that can help with compliance for those of us with self-hosted shops. I do feel that Etsy is in error for not coming out with some kind of statement sooner, but I’m hopeful we’ll hear from them at some point. Necessity is the mother of invention and, as Allie said, the pain point is at an all-time high right now.
Awesome! So glad you could share your experience Allie and Steve! I’m thankful that you have had such a quick response to changes.
Taxamo has released a new pricing structure with no monthly fee! And I believe Woocommerce is now able to integrate with Taxamo, so it looks like many of the wordpress based shops will be able to comply with a little bit of setup and paperwork.
I’m on this.
Thanks Sara! So happy to hear about the new capabilities for WordPress sites!
Thank you Sara. Taxamo has also introduced 20 FREE transactions per month so a small merchant can use the service…for FREE. Anything over 20 transactions starts at €.20 per transaction so still very reasonable.
That should cover businesses my size, I think. I’ll have to look but I don’t think I do more than that in transactions to customers in the EU each month.
I only have a handful. But even if I go over 20, I can handle paying a few cents per transaction. It was the monthly fee that made it impossible for me to consider. Looks like I know how I’ll be spending the next couple of weeks…
I definitely think that is the one big benefit small businesses have over large – we can react fast. We don’t have to run things up a chain of command and get several people in agreement we can just do. Indiesew show perfectly how that gives the smaller companies an advantage over the large. Lets face it we get very few advantages over the big ones so we should make the most of those that we do have1
That’s a really good point and I love to see small businesses taking full advantage of that asset.
Agreed! While being a small business owner is often times grueling, there are so many advantages over the inertia big firms experience.
I think the ease in transitioning to complying with the VAT changes has more to do with whether a platform was already part of the transaction than business size. For sites that connect content creators directly with customers they’re effectively facing changing their business model.
Thank you for your comment, Ysolda. Your blog post about VAT has been a pillar of accurate information through this whole mess.
I’m having trouble totally grasping what you mean and wonder if you could clarify. You’re pointing out that for a site like Indiesew it’s easier to comply with VAT not because they’re a small company with no red tape, but because they are an intermediary between the content creators and the customers? Do I have that right?
Some platforms are effectively resellers – customer buys pattern, music, ebook etc from Patternish, ITunes, Amazon and the creator receives a future royalty payment minus a usually substantial cut from the platform. Generally these platforms have some kind of selection or approval process. It’s very clear in this case that the seller is legally the platform and that they should be responsible for VAT and other taxes (they’ll be reporting the sales as income for example). There’s work for these platforms in dealing with the VAT changes but it’s not that complicated and their cut should general be sufficient to cover the increased admin. They are doing different things regarding exclusive and inclusive pricing however and I’m curious about which option Indiesew has chosen.
Many other platforms connect buyers and sellers directly, they provide tools and sometimes charge the seller a fee for their service (Ravelry has a free tier and Craftsy is always free). Until now these platforms (which exist outside of the craft community, Bandcamp is one) have considered the purchase to be between content creator and buyer. The EU is insisting that despite that they are responsible for VAT. Because the EU doesn’t seem to have realised this type of platform actually existed until very recently they don’t know how complying should work in practise and whether these platforms will have to effectively change their model to be more like the first. It doesn’t look like any of them will have a long term solution in place by Jan 1st, not because they’re not nimble, but because the challenge is much greater, and too many issues are currently unclear. If these platforms do end up collecting VAT while continuing to have the buyer pay the creator directly they then face issues with billing the creators for VAT . Some will probably decide that that’s too risky and that they’ll switch to being a reseller type of platform. They’re also looking at introducing different systems for physical goods, VAT registered sellers, sales to VAT registered businesses etc and at the taxation and liability issues of a jump in small fees as income to all content sales. Many of these platforms will, obviously, have to raise fees to cover the significantly increased admin. They also have to balance the desires of EU buyers (who want to see a single VAT inclusive price) and non-EU sellers (who don’t want to see their profits vary depending on the buyer’s location).
Greetings Ysolda!
Love your insights! As a reseller, we agree, that the responsibility to react to these changes was clearly ours. Shops that simply act as an intermediary between the buyer and seller definitely have a more to consider on this issue. For us, there was no question but to react quickly and address the updates.
We have chosen exclusive pricing for applying the value added taxes for our pattern sales, so EU customers will see the VAT added onto the price of each pattern in the checkout process.
Thanks!
Allie
I’m curious about whether we’ll see more of a move to vat exclusive pricing with these changes and how EU customers will react. So far many people I’ve asked have said they’d abandon the purchase if VAT was added on at the checkout. In many ways though it makes handling variable rates simpler, but will need to be very clear on the listing.
Thanks for the clarity, Ysolda.
Taxamo is having a webinar for US based companies on monday 12/22 and you can submit questions in advance:
http://www.taxamo.com/webinar-digital-sales-europe-2015-eu-vat-challenge/
The Woo Commerce plugin is hopefully coming later this week. It is the best solution I’ve seen so far and the no monthly fee is a very good thing. I’m still deeply concerned about opening myself up to EU audits and the complexities of the rules. It’s unfortunate that Etsy has no info for us – I guess my auto download products will have to be removed in January? I believe the lack of sales threshold in the VAT rule is a terrible mistake that benefits no one and will prevent many people fom starting little businesses online – if you want to expeiment or try an idea in a small way the barrier to entry is probably too great -such a loss of opportunity and such a shame.
Thank you for that link, Ann. I listened in on Taxamo’s UK webinar and it was very informative. It sure is too bad that Etsy has been so quiet and I agree with you that this new law will really squash experimentation and that is a serious shame.
It is worth bearing in mind that Taxamo has a vested interest in making handling this on your own sound scary and difficult. Their neither an official or impartial information source. Their service also does not mean that you won’t need to VAT register and complete quarterly returns.
I swear I know the difference between they’re and their!
We’ll be listening to the webinar next week. We’re excited to hear what Taxamo has to say!
The Taxamo WooCommerce plugin went live today: http://www.woothemes.com/products/woocommerce-taxamo/
I wish I had someone like Steve to run my site and who could look after that sort of thing, but for those of us who don’t, I am removing all digital patterns for sale from Craftsy on the 31st December as they only supply digital downloadable patterns and there does not seem to be any control over emailing them to people. As there has been a recent release from the British tax office (HMRC) to say that if a digital product, such as a sewing pattern, is emailed it is not classed as a digital service, (which is a relief). Therefore I can still continue to sell patterns through Etsy and Folksy by doing this.
See: https://www.gov.uk/government/publications/revenue-and-customs-brief-46-2014-vat-rule-change-and-the-vat-mini-one-stop-shop-additional-guidance/revenue-and-customs-brief-46-2014-vat-rule-change-and-the-vat-mini-one-stop-shop-additional-guidance
It’s all a minefield and it is a step backwards in this digital age. I am off to a business centre for further advice tomorrow, but Etsy needs to have the common sense of keeping sellers informed about what they are doing at this worrying time for us all.
Whichever way you look at it , it is bad news. I buy patterns and I don’t want to pay 20% more for them and in many cases I won’t buy. So the non EU countries will miss out on sales – it isn’t simply (!) a matter of working out how to make the transaction happen. For UK sellers who can’t work out the nightmare logistics on this stuff, business will be ruined or just not get off the ground, because HMRC will be able to act on those not complying. I’m seeing established business pulling their products until they work out what they can do to accommodate all this stuff. It’s expensive, time consuming and it is going to kill off businesses. It’s heart-breaking actually, seeing the work of people working so hard to be independent of the corporate businesses being destroyed in this way. I don’t want to buy my indie patterns from Amazon. That’s just too much of an oxymoron for me to deal with. Where is the encouragement of creativity? This thing is so destructive.
Sharon – thank you so much for that link! It means I can do the same and continue to sell patterns through Etsy and Folksy. Bummer than Craftsy and PatternMart won’t support anything other than automatic downloads, but I cannot justify adding VAT to my products, nor can I face the incredibly complex reporting that would go with it – I’d spend more time reporting, collecting data, filing returns, etc than I would creating anything.