Brain taxation

I’m sure you’ve heard already, but there’s a bit of a problem come 1st January when it comes to our little businesses, VAT and selling digital patterns and other products within the EU. If this comes as a surprise, here is a very good blog article explaining it in layman’s terms.

My main personal concerns are:

  • What will happen to my BOM?
  • What about selling my patterns on Craftsy in general?
  • What will this mean in terms of availability to me?

I’ll start with point 3. This affects pattern designers the World over, not just in the UK. I’m not sure how it will work for those say, in the US, maybe they can use the UK Mini One Stop Shop (MOSS) to sort out their sales to the EU. I’m struggling to find much on it, and I’m sure they are too.

If the pattern designers of the US, Canada, Australia and anywhere else that isn’t in the EU are going to block sales of their patterns to us in the UK as one of the EU member states, that is going to have a knock-on effect. Imagine this, say the Sew Together bag for example wasn’t released until 2015. That would mean that none of us in the UK would be sewing it because either a) it would be only made for sale to those outside the EU to avoid the US-based designer from getting into a tax mess, or b) it may have been enough to scare off the designer from releasing the pattern for sale at all.

We are going to be poorer in terms of what will be available for us. I’m finding this pretty scary. If I want something I will have to wait ’til I go to Canada in July and download it whilst on holiday through hotel wi-fi, it seems a bit of a backwards thing to have to do.

This leads to points 1 and 2. On the other hand I can still sell to the US, Canada, etc which is great for me. BUT the headache of trying to electronically block those in the other EU countries somehow myself is not going to happen, nor am I going to be able to figure out my way through the VAT rules and paperwork, and I certainly can’t afford an accountant. But the BOM must go on, and after nine months of work already on this, I don’t want to start making it free from now on. It’s not fair to those who have paid for some of the designs already. Equally, with nine months of work behind me I am not prepared to end it prematurely either- that would be even worse. The BOM must go on.

Third party sites are- theoretically- supposed to be responsible, according to HMRC (check out this flowchart- pinched from Ysolda). However, Craftsy- my current portal of choice- seem to be leaning towards the we’re-not-interested-in-helping-you angle. When paid for patterns nearly completely disappear on 1st January, I’m sure they will think about changing their minds, but really, we’re too close to that date to be sticking our heads in the sand. Here’s a list of third parties currently being more cooperative- great if you’re a knitter, not so much if you do practically anything else.

My solution I think will be that the free pattern will remain on Craftsy for the month it is free. Once it goes up to $1.50 price, or once the full collection is put together at the end of the run I will be transferring over to Etsy.

Don’t get me wrong, Etsy are being just as crappy as Craftsy over this whole thing, but here is the solution, for me at least.

Crafthub.

It’s a plug-in for Etsy. I plan to pay the $8 a month subscription (which basically means I need to sell six block patterns a month to see $1 return) and then list my patterns as physical good and then they deliver on my behalf, with the ability to block out France, Germany and friends. I don’t want to do it, but it may be the easiest solution until Mr VC re-examines this mess (and the thousands of VAT returns for about £2.50).

I’m also considering a co-op with another seller that I won’t name just in case she wants to keep things on the low for the time being. She will register for MOSS and then act as an agent for other sellers in the same boat, though I’m not sure if I will be a good fit for her given the tininess of my patterns (my future bigger ones may well be though, but I get less business from those) this will mean that International selling continues as normal. We shall see what the future brings.

In the meantime, if you haven’t signed the petition to restore the usual £81k VAT threshold, please do. Once the target signatories has been reached, it is supposed to be discussed in parliament, and I think it needs to be discussed, it’s really not been thought through very well. The scariest thing is that this will continue to be a problem in the future as it will also apply to selling physical goods to the EU in the next phase. Lets get this looked at and acknowledged now.

Latest update – Ysolda Teague, Issy Zinaburg and other prominently outraged people in this will be meeting with HMRC officials. Keep your eye out on Enterprise Nation over the coming days and weeks!

P.S. I’m possibly still not fully understanding this, please correct me in the comments if I’ve interpreted anything incorrectly.

8 Comments

  1. Posted December 2, 2014 at 6:54 am | Permalink

    I think you might be overreacting some. For example, the law requiring those of us outside the UK to charge and pay VAT for electronic sales has been in place since 2003. That is not a typo. 2003.No one does it as it is unlikely that the European governments are going to take the steps to chase me down in Canada to remit the VAT on the 10 patterns I sold in Norway and the 2 in Germany. Can you imagine the cost of all the extra jurisdictional legal actions. And the paper work will not be that hard, I do GST paperwork for my business each month, which is much the same. It takes no time at all so I am pretty sure the VAT MOSS thing will be easy too and that is what I would do if I were you. Anyway, I have been reading much about it all and I expect there will be some interesting developments yet. But the one thing I am certain of is that the patterns will still be available and for sale. Maybe some folks will charge a bit more to cover the taxes.

  2. Posted December 2, 2014 at 8:02 am | Permalink

    This must all be very worrying for you an many designers. I have signed the petition at change.org and posted to FB

  3. Posted December 2, 2014 at 9:47 am | Permalink

    If you are willing to manually send out the pdfs via email, the sale is not VAT-able.
    https://twitter.com/HMRCcustomers (look for manually)
    You will need to sell on Etsy via physical goods. You won’t have to pay for Crafthub and best of all, you won’t exclude EU customers. (in my mind, it’s one giant step backwards after experiencing instant download)
    I believe before the year ends, Craftsy and Etsy will release statements regarding their positions. I’m more worried they will shut down instant download. It’s a waiting game for now.

  4. Posted December 2, 2014 at 9:47 am | Permalink

    Thank you for this info and all the links, Kerry. What a nightmare! It’s unbelievable that there’s no threshold for exemption for those of us trying to sell the odd pattern on a tiny scale. Etsy and paypal fees are bad enough. It’s certainly a disincentive to anyone trying to get started and penalises most the people who can least afford it 🙁

  5. Posted December 2, 2014 at 11:20 am | Permalink

    I’m going to go down the route if manually sending PDF documents. I sell few enough that this will be manageable. I’ve written a little blurb to add to my listings on the 1st January 🙂

  6. Posted December 2, 2014 at 4:14 pm | Permalink

    What an absolute pain in the rear! I hope the whole thing blows over and turns out to be not that big of a deal, but the whole thing just stinks!

  7. Posted December 3, 2014 at 6:42 pm | Permalink

    I think part of the issue is that HMRC is giving out conflicting information to different people – Jane above is saying you can e-mail them, but the HMRC man told Ysolda that you couldn’t. I also think Leanne is right (and my dad the ex-taxman agrees 😉 ) about the feasibility of being chased up on these things.

  8. Posted December 4, 2014 at 2:18 am | Permalink

    Hi Katy and Kerry, to be honest HMRC has given conflicting answers over this email thingy. It depends on who you ask! On twitter HMRC, it has always been yes. But on a vat-moss webinar (Andrew Webb from HMRC attended) on 2nd Dec, just 2 days ago, this question was answered and the answer is a clear NO. If you haven’t already attended the webinar, you can read a transcript of the q&a. It is only a guideline and not meant as legal advice. http://www.clarejosa.com/vat-moss-webinar-2nd-december-2014/

    The webinar also addressed an impt issue. The legislation was written (poorly) to make 3rd party platform responsible for VAT, not the sellers. Here is the tricky bit. 3rd party platform is open to interpretation! EU does not provide a list of which 3rd party platform is liable for VAT for the sellers and who’s not. In their minds, every 3rd party platform KNOWS AND WANTS to be responsible for VAT.

    The way forward is to find a 3rd party who says explicitly “I’ll take care of the VAT for you” and sell thru’ it.

Post a Comment

Your email is never shared. Required fields are marked *

*
*