At the beginning of 2015, new VAT regulations came into force in Europe, which I thought I would mention because I know that like me, some of you sell digital services directly from your website.
Up until this year, VAT was calculated on the basis of where your business is based, but from January, that calculation is based on where the customer lives.
This means that if you are selling digital services to people in any of the 28 different countries in Europe:
- You have to be registered for VAT in your own country
- You have 20 days from the sale to prepare a VAT return
- You have to pay the VAT at the prevailing rate for that country – e.g. 21% for Spain, 17% for Bosnia and Herzegovina, 25% for Denmark, 24% for Finland, 19% for Germany – you get the idea!
To say it’s a shocker, wouldn’t be properly engaging with the mayhem this is creating!
I thought I would mention it, as I realise that some of my readers would find some information and links useful in clarifying the situation. What’s more, there are some mechanisms that already exist which can perhaps solve some of the problems, though I can’t help thinking that the extra expense, at least of registering for VAT and being obliged to make quarterly returns to the government, will make many businesses no longer viable.
It has occurred to me that perhaps selling digital products through a third party such as ClickBank, Amazon or eBay might take much of the headache away, but I am aware that some people would prefer to use ‘more ethical’ companies to do so. However, I haven’t been able to get them to disclose which alternatives they are currently exploring.
Also, it has been suggested to me that getting a customer to pay on your website, but then send you an email with the receipt number, so that you reply to their email with the downloads attached, may be a loophole worth exploring for some. I have no idea myself, if this will be an acceptable alternative, or even manageable. After all, the joy of a downloadable service is that customers have instant access to the product, even while you, the vendor, are on the ski lift.
If you are one of the many people needing to find a solution, you could do worse than read Graham Jones’s really useful article, which includes links to the HMRC webpage, which describes this new legislation, as well as links to how to register and some of the third-party plug-ins you can install on your website to sort out the VAT commitment automatically.
Alice Elliott’s blog also shares info and links that you might find useful too.