The new VAT regime for digital sales launched in the UK last week on the 1st of January. Put bluntly, it’s an admin nightmare for smaller sellers of downloads and a blow too because the £81k threshold doesn’t apply. We’ve written about this before.
This post is aimed at UK sellers trading with buyers in other EU member and assumes that you wish to try and comply.
1: Stop selling outside the UK
It goes against a lot of the advice and trends around ecommerce at the moment but if EU sales represent a relatively small percentage of your total sales and getting to grips with the MOSS seems like a major headache, then it could well be easier to stop exporting.
If you only sell domestically then there is no VAT MOSS to sign up to, no additional paperwork and the £81k UK VAT threshold remains for digital goods as well as physical ones as long as your trading is just within the UK.
2: Go manual
One of the frankly ludicrous little loopholes in the these new EU VAT regulations depends on how the digital item you’re selling is delivered. A fully automated process is liable. But if there is significant “human intervention” then it’s not. HMRC have confirmed that you don’t need to comply if you email an item manually to a buyer in the EU.
So, one option (if your scale permits it) is to go retro and remove the labour-saving automation and just email out your digital items yourself. You couldn’t make it up.
3: Bundle up?
HMRC seem to be dealing with this on a case by case basis but I’ve seen that a number of sellers are skipping the new regs by more clearly laying out what they sell and positioning the download as part of a bigger package.
So some sellers are offering it in conjunction with an online forum or ongoing support (possibly if they’re selling an ebook or online course). It seems that some of these combinations are satisfying HMRC that they aren’t selling a product that is predominatly a digital download.
Other workarounds I’ve seen include selling the licence to a digital product or offering a download version of a physical product (the music you sell is mailed out on a physical CD but you also get the downloads).
But there is no definitive guide on these here so please clarify with HMRC regarding your individual circumstances
4: Let a marketplace deal with it
For music sellers, Bandcamp is taking the strain out if this for musicians and in other cases Amazon will be just the ticket. This approach will obviously incur fees but will work for some and also represents a good temporary solution if you’re not sure how to proceed right now. Other marketplaces too have been putting in place some fixes.
Is there a realistic chance that this situation is going to be improved? HMRC have shown willingness to be flexible but the changes thus far have been minor. It seems to me unlikely that there will be any major change in the rules.
In an ideal world, the UK VAT threshold would be reinstated to take the small scale digital sellers out of the pale of the new VAT rules. The perhaps would, at least, make them tolerable.
It’s the small, kitchen table sellers who are being unduly punished by the new regs. The admin is onerous for them and the revenue they will generate is only small beans. If the new rules can be changed to accommodate these small sellers moving forward, that will be a win.