Yesterday HMRC hosted a Twitter chat to answer questions about the new VAT rules that I blogged about the other day. A little clarity has been obtained, but far more confusion has been sown. Juliet has a blow-by-blow summary of some of the answers. I’m going to try to give a more high level view.
First up, as I suspected, the petition that is being passed around is largely a waste of time. HMRC cannot unilaterally decide to have a VAT liability threshold for the whole of Europe. We are bound by the laws of the countries that we sell into, and that’s that.
HMRC also confirmed that companies outside of the EU are liable and must also charge VAT on all sales into the EU. (Yes, this does mean you, Alisa). However, the chances of them actually enforcing this are pretty low, especially as most of the sales will come via third party platforms and so will be covered.
The good news for many people is that if you sell only via third party platforms such as Amazon then you should be OK, because they will charge the correct VAT rate for you, and you don’t have to worry. Except that by no means all of these platforms do this, and if they do they may not do it correctly. HMRC avoids questions about having an approved list of platforms, and instead says it is our responsibility to read the Terms & Conditions to make sure that the platform complies. Many of these platforms are US-based and may not care too much about getting it right. Google Play is apparently not compliant, and if they don’t play ball, what chance is there that others will?
There is another wrinkle too. In theory VAT applies at all stages in the supply chain. If there are business-to-business transactions, the selling business charges VAT, and the buying business claims that VAT back from the VAT their charge their customers. It isn’t clear to me why someone selling through Amazon doesn’t have to charge them VAT, but presumably some sort of ruling exists. My guess is that any such ruling will be dependent on the person selling through Amazon being the originator of the product. That is, Amazon is not buying an ebook from you, it is buying the right to publish your words. But that isn’t the case for me. I’m publishing house, not an author.
I am pretty sure that once HMRC gets their heads around that concept they will decide that I have to charge Amazon VAT on the books I sell them. Amazon, however, persists in assuming that everyone who uses their online publishing service is a sole author. That’s the way they want the world to be: just them and authors. So I’ll have to charge them VAT on the books they sell, but they won’t acknowledge that they have paid it and they’ll add yet more VAT onto the price before selling it. Which means customers will be taxed twice.
There are problems with registering for VAT too. I could be a good girl and sign up to do this. Except that if I want to carry on doing direct sales I have to provide two independent sources of proof of the location of each customer (and keep this information on file for 10 years). One such item should be the IP address from which the product was purchased. PayPal does not provide this information, so I’d have to work out how to get it myself, or pay for a more sophisticated ecommerce system that will do it. Of course I closed the original bookstore because I wasn’t doing enough business to afford the fees from Shopify.
HMRC hasn’t begun to think about the Data Protection Act implications of this.
So yes, direct sales are definitely a non-starter from January 1st. Amazon will be laughing all the way to the bank.
HMRC did try to be helpful. There are ways around the regulations. It is OK if you just take orders on your website, and then send the product to the customer via an email that you type yourself. Quite apart from the dragging us back into the 20th Century involved, there’s the small matter that the convenience of direct downloads is one of the main reasons why people shop at Amazon. An online bookstore that doesn’t offer direct downloads is dead in the water.
It gets worse. I tried to ask HMRC about crowdfunding and Patreon. They didn’t reply, probably because they had no idea what I was talking about.
Again, once they get their heads around all of this, they will almost certainly decide that such sites do have to charge VAT on all sales into the EU. They are not going to be impressed by claims that these are “donations” with free gifts attached. Currently Kickstarter is the only platform I know of that tries to do VAT correctly. I have been nervous about using them in the past because they insist on charging VAT on sales into Europe even if the seller is not VAT-registered. I can see now why they do that, and from Jan 1st it will be mandatory. But there are other complications with using Kickstarter from the UK that mean I really don’t want to use it.
Obviously I’ll be discussing this with all of the authors whose work I publish, but it certainly seems like something will have to give. The more I think about it, the more I come to the conclusion that the only viable option is to sell Wizard’s Tower to someone outside of the EU.