The whole VAT MOSS thing is sooo frustrating. Not because we’ve got to start accounting for VAT on digital products sold to buyers in EU, I can accept that. I get it.
But what frustrates me is the amount of negativity around all this; people talking about taking their digital products off sale, others saying they will block sales to EU consumers (currently it’s illegal to discriminate), and some who say they are going to close down their business over this new ruling!
That’s being way over dramatic in my view. And frankly, it’s “lack speak” – focusing on what “is being lost” rather on getting on with the business of making money.
But here’s the thing;
- VAT MOSS is happening, and if you aspire to a successful business, then you need to suck it up and move on
- Very few 3rd party systems have been configured properly yet, but that’s not your problem. You can only influence your own actions
- Self-Assessment is far more complex, and we ALL have to deal with that from day one of self-employment – even if you only sell the occasional knitting pattern for £2.99!
Having looked into VAT MOSS with my “level” head on, it strikes me that complying isn’t so difficult – especially when you currently only use PayPal buttons on your website. In fact, I think that if you are using PayPal to sell your digital products from your website, you’re in the better position right now than if you sell via 3rd party (not yet compliant) marketplaces.
So, I’ve compiled this little checklist of exactly what you need to know… with links to official info sources if you want to avoid the hype and just deal with facts.
Firstly, you only need to worry about VAT MOSS after you sell your first digital product to a consumer in the EU – you have until the 10th of the month following the sale to register.
Yes, you will need to register for VAT in the UK, but you do not need to charge VAT in the UK until you reach the VAT threshold (currently £81,000 turnover in previous 12 months)
To register for VAT go here, and if your business is below the UK VAT threshold, and you are only registering in order to comply with MOSS, when you are prompted to search for the correct business activity you must (and this is VERY important!) follow the below instructions;
- Search by business activity and then enter digital services in the following text box
- You will then be directed to select the business activity entitled supplies of digital services (below UK VAT threshold) under MOSS arrangements
How can you comply with VAT MOSS using Paypal?
Firstly, you need to add the International Sales Tax rates for EU countries (< click link to download) into PayPal. Then you make sure that when you create your payment buttons, you always tick the box (in step 3 of the button creation process) that asks for your customers name and address.
You can also customise the text field to ask for their VAT number at checkout – if they don’t supply a VAT number you have to charge them VAT.
Watch this 6 minute video and follow me as I set up the International VAT rates, and compliant buttons inside PayPal.
That’s it… all you can do for now. You’ve done everything within your power to comply, and now you can just carry on with your big plans for 2015, and know that if you do sell fully digital products to a consumer in the EU, you’ve covered yourself.
UPDATE 29/12/2014: HMRC have confirmed that for those in the UK below the VAT threshold, you can use the information provided by your payment processor ( PayPal or equivalent) as your evidence for proof of place of supply until the end of June. Basically they’ve confirmed that by following the above steps, you’ll be compliant until June 2015. By then, we’ll have a better idea of what is happening, and more software providers will have added extra features to make compliant data collection easier.
For the full update, go here: http://euvataction.org/2014/12/29/hot-off-the-press-concession-from-uk-hmrc-will-enable-more-firms-to-keep-trading/
Infusionsoft user and want the fastest route to compliance? Here’s what we’ll be doing;
Firstly, we’ll be ensuring that all the VAT Rates for EU countries have been loaded correctly inside Infusionsoft.
Our products are set up with net prices, and VAT is added at the applicable rate, once the customer has selected their country
Without manipulating the order form template, there is no default way to request VAT numbers at checkout. We process all our digital sales via Infusionsoft, but invoice manually through Xero. So at the point of manually raising the invoice, if we see that a customer has given us an EU address, we’re going to manually email to request a VAT number. If they supply their VAT number, we’ll refund the VAT element of the sale back to their card and disregard the sale for MOSS.
Most of our sales are to customers in the UK and Australia/NZ, and a quick check recently revealed that no more than 20 of our lifetime digital sales were to customers outside of UK, inside of EU. We are also VAT Registered, so are already used to accounting for VAT.
If you’re not VAT Registered, hopefully this guide will allow you to get back to focusing on your big picture; the goal of running a successful online information business.
You can read HMRC’s full MOSS Briefng (46) that explains their current ruling in full here
Do you need to register for Data Protection?
This is also a good time to evaluate whether or not you need to register with the Information Commissioners Office for Data Protection. It costs £35 per year, but you may not need to register. Take this ICO self assessment test to discover if you are legally required to register