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. The best R&D software can streamline these processes and prevent such issues. 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.
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If you’ve handled it differently and are willing to share what you’ve done or if you just want to commiserate, please do!
It does indeed sound like a lot of hassle and costs to be law abiding. Not fun in your case.
Since you are selling to EU customers you are practicing commerce “in Europe” and there is no doubt your transactions fall under Europeans laws. A totally different question is whether any European (I mean national within Europe) authority would take the time and energy to try and collect unpaid VAT all over the world even for small companies I guess …. There is the law and there is the reality of its enforcement ….
If only you knew what reporting standards (etc) have been imposed by the IRS to different countries within Europe to force European banks to collect and transmit informations about US clients (being US residents or even solely US nationals not even living in the US and not even US tax payers (having no assets in the US and no revenue there)) I think you would find European VAT obligation totally logical and not so heavy…. 😀
(the IRS collects information about the assets of people who were simply born in the US … (remember if born there you are American) even if they didn’t stay living there and have another nationality and actually nothing to do with the US really… This lead people who were simply born in the US to officially abandon their US citizenship just because of the paperwork imposed with/in banks for information the IRS will probably never use ….)
Sounds crazy, right ? Still true
Sorry for this boring piece of comment but I could totally relate to your frustration here …
🙂
My understanding is that this was introduced to close the Amazon loophole, where they were avoiding VAT in kindle sales by having them ‘delivered’ from offshore to the UK. So it’s been designed to impact sales where electronic property is auto-delivered only.
So – and this is worth checking further – if instead of auto-fulfillment you move to an email of the PDF – initialised by you rather than a bot – you’ll be outside the scope of they legislation. Because paying 12.5% of your gross just on a bank transfer is crazy!
From what I can tell that is not a valid work around. I wish it were!
Hi Abby,
FW is right: that law only counts for “digital services”. In case you sell these – to make it all worse – you need to collect the VAT of the buyers country – 19% for German customers, 21% for dutch customers…and so on.
Unfortunately – as with most EU laws – every country’s government is responsible for defining, how an EU law is to be understood (ironically, this can lead to the same law requiring different actions in the Uk and in Germany). The question here ist: Are your sewing patterns “digital services”? They are, if they are downloadable. But they might not be, if you email them.
I didn’t manage to get a definitive answer from those in charge here in Germany. But in the UK they clearly differentiate between downloads and sending a PDF in an email. So – yes – for the time being, emailing your patterns to EU customers IS a valid work around! at least it was for 2015.
Look here: https://www.gov.uk/government/publications/vat-supplying-digital-services-to-private-consumers/vat-businesses-supplying-digital-services-to-private-consumers
However, this might already be outdated, because I vaguely remember the EU Kommission wanting to enforce that VAT law on ALL goods – not only digital ones.. will have to check on that again. so you’re probably better off having set up your VAT-collection.
Best regards from Germany,
Sarah
When my mother was alive and I helped her financially I opened a bank account with Citibank which allowed me to transfer British currency to my mothers US currency account at no cost. It had a name like dual currency account, been years and that’s probably changed. If there is an account such as this then you could just do an online transfer to the VAT man.
You may not know that the US Revenue requires all American citizens to file tax returns even though they may not live or work in the USA. I’ve not resided in the US since 1982 but by law I’m supposed to file a tax return and pay taxes if I earn over a certain amount even though I already pay taxes in the country I live in. This even applies to my friends daughter who was born in the USA premature but has never lived or visited there.
It’s sad this VAT debacle has really hit small vendors the hardest. If I learn of another was for you to pay I will certainly let you know.
We lived in the UK for a year and had to open a bank account there (through HSBC). It has sat open for years with some GBP in it and I always thought it was a bit of a waste until VATMOSS came along. I can use the account to pay my VAT bill and it costs me nothing! Have you looked into getting an international account? Another option would be to have a friend with a UK bank account make the payment for you and you could then reimburse them through paypal (or any other way).
Wow, not that is a convenient!
I have been using TransferWise to transfer money between the UK and the US since moving to the UK. Check into it and see if it will work in this instance, it will save you that $40 fee.
Interesting, Karen. Thank you!
Hi Abby!
My European friends think checks are the most hilarious things! Everything is done via wire in the EU. It’s similar to our direct deposit, but all bills are paid this way. Anyway, just a tip… I have been paying bills in the EU for about 13 years using Xetrade at xetrade.com. I’d recommend a service like this. (I’m guessing TransferWire is similar.) It’s very convenient, easy to use online, and the exchange rates are great. No bank fees, and it takes me all of 5 minutes to send money.
Someone else mentioned opening a bank account in the UK but that would create two steps. I have a bank account in the EU but if I used it to pay bills I’d have to first wire money from the U.S. to the European bank, then wire it out to the payee. Xetrade bypasses having to go through the bank so it’s both faster and easier.
SO RELIEVED I found you and this post! I have literally spent so many hours trying to figure out how to wire transfer the money from my bank to VAT. My bank said that the account number provided doesn’t match the “sort” number that VAT moss lists on their website. No one from HMRC responds to emails or online customer service so I am an at complete loss as how to wire the money. Can you help point me in the right direction as to what the account number/sort number/ect is that I need to wire the money to in order to pay this tax on time?
I just did it tonight! Use TransferWise. Super simple and much cheaper. It’s an awesome service.