What is VATMOSS and how does it affect Folksy sellers?

VATMOSS advice, Jessica Joy, knitting pattern, PDF,

You might have heard talk on the news or on social media recently about VATMOSS, a new scheme designed to allow people who sell digital goods to comply with EU regulations. Its introduction has caused some confusion, so we thought it would help to clarify what exactly it is, and what it means for Folky and Folksy sellers…

What is VATMOSS?
VAT Mini One Stop Shop (VATMOSS) is a scheme to allow people who sell digital goods to comply with new EU regulations. These are:

“On 1 January 2015 changes will be made to the European Union (EU) VAT place of supply of services rules involving business to consumer supplies of digital services (broadcasting, telecommunications and e-services). From this date, the place of taxation of these digital services will be determined by the location of the customer who receives the service, rather than the location of the supplier of the services.

“A new online service, the VAT Mini One Stop Shop (VAT MOSS), is being introduced so that suppliers of digital services don’t have to register in every EU member state in which they have customers. Businesses can register to use VAT MOSS from 20 October 2014 and the online service will be available to use from 1 January 2015.”

Source: http://www.hmrc.gov.uk/news/supplying-digital.htm

 

What is our position?
Our stance at Folksy is that VATMOSS (VAT Mini One Stop Shop) unfairly impacts upon sole traders and micro businesses (see this article in The Guardian). Requiring compliance means administrative costs, which will mean many micro and small businesses decide to stop trading in the EU altogether. The situation will only be compounded if and when physical products follow the ruling on trade of digital products.

Currently, anyone selling digital goods where there is no significant human intervention in the sale (eg. personalised or tailored for the customer somehow) through Folksy would be required to register with HMRC and pay the sales tax due on any sales to EU countries (regardless of your business status or revenue). For the most part this would seem to affect people selling PDFs of patterns or designs, however, there is some debate about what constitutes an e-service and HMRC are still working through definitions (see this Twitter Q&A with HMRC).

Folksy is a marketplace but the contract is between the buyer and the seller and we are not deemed to be an agent in that transaction and as such the seller is currently liable to comply with VATMOSS.

If you decide that the cost of complying with the regulations is too great (for the potential revenue earned) you can choose to just sell in UK only.

We are continuing to monitor the situation and we will provide further updates when we have them. In the meantime, we welcome your input and questions, so please leave them in the comments section below. 

• • • • • • • •

UPDATE (Monday 15 December 2014):

We are speaking to HMRC this week to help clarify the situation for Folksy and for Folksy sellers. We will be asking them to clarify two things in particular, namely:

  1. What constitutes an e-service? Are PDF patterns an e-service; and if the means of delivery is not automatic but manual (email or similar) are they excluded?
  2. The HMRC’s definition of a marketplace. The examples used by the HMRC so far are where the marketplace is the merchant – a very different legal entity from Folksy which is not involved in the contract between buyer or seller and probably not (though this is a grey area) an agent in the sale. We need clarification on this to determine what our responsibilities are, and what support we need to provide our sellers.

It seems that the HMRC is still ironing out the details, but we hope we will know more after our discussion on Wednesday. We will keep you updated here on the blog.


UPDATE (Thursday 8 January 2015):

We have now heard back from the HMRC on the above points and we can confirm that the new rules do not apply to PDF patterns, printables or graphics sold through Folksy and supplied to a customer by attaching a PDF or file to an individually written email. However, if a PDF pattern, printable or graphic is delivered to a customer by automatic download from another site, even if the purchase was made through Folksy, the new legislation does apply and you will need to register for the VAT MOSS scheme.

Read the full update for more details here: VAT MOSS update – part two

 

(Featured image: Woodland Animal PDF knitting pattern by Jessica Joy)


 

LINKS to resources:
https://www.gov.uk/government/publications/vat-supplying-digital-services-and-the-vat-mini-one-stop-shop/vat-supplying-digital-services-and-the-vat-mini-one-stop-shop

Enterprise Nation is involved in liaising with HMRC and lobbying for small business:
https://www.enterprisenation.com/blog/posts/hmrc-agrees-to-meet-with-businesses-affected-by-vat-moss

 

 

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