New VAT Rules from Jan 1st thanks HMRC

[plumbob]

Copied this from here
http://www.twitlonger.com/show/n_1sji42f:

[b] Some advice if you buy/sell music via bandcamp, to understand the new EU VAT law[/b]

This is a long, boring, but VERY important post, mainly aimed at musicians/labels who sell on sites like Bandcamp, but it's also relevant to EVERY person who buys music. Please give it a read and your full attention, because from the 1st January 2015 (aka 3 days time), artists/labels will be breaking the law if they don't act. Spread and share it too, because everyone will need to see it, especially the artists/labels.

(Also, as a disclaimer, although this information is correct to the best of my knowledge, I offer no guarantees there won't be any errors etc.. Think of it as a useful primer to get you started. If in doubt, speak to your local tax advisor and/or accountant)

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Basically, when I (me being a label + musician) sell you one of my digital MP3 files, I don't charge you (the listener/buyer) any VAT because under current UK tax rules, as long as I earn under £81,000/year, I don't need to be VAT registered. £81k is obviously a lot of money and about 99% of your favourite indie artists probably don't charge VAT because they're under this threshold. If they are over, it's a flat VAT price specific to the country they live in. So a UK-based artist earning over £81K/year would charge 20% VAT, as that is what the UK VAT rate is set at.

Unfortunately, a new EU tax legislation was agreed upon, which will finally be made law on January 1st 2015, specific to businesses who offer "digital services" (aka any thing you charge a customer to download, such as games, video, training videos, and most importantly for us - music). The new law will mean that ANYONE who offers a digital service sold via their own automated website will now need to be VAT registered, regardless of whether they are under the UK 81K income threshold. This is bad enough, but it becomes much worse when there are 28 different EU markets, with 75 different tax rates!

Here is the HMRC's definition of what a "digital service" is [url="https://whitehall-admin.production.alphagov.co.uk/government/uploads/system/uploads/attachment_data/file/390300/VAT_MOSS_Flow_chart.pdf"]https://whitehall-admin.production.alphagov.co.uk/government/uploads/system/uploads/attachment_data/file/390300/VAT_MOSS_Flow_chart.pdf[/url]

And here is a a good overview of what is happening, specific to musicians.
[url="http://www.bmmagazine.co.uk/in-business/advice/need-know-vat-regulations-websites-selling-digital-downloads/"]http://www.bmmagazine.co.uk/in-business/advice/need-know-vat-regulations-websites-selling-digital-downloads/[/url]

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So what does this mean really? Well, as an example, I live in the UK and when a German fan buys one of my MP3s, because they live in a country that is a member of the EU, I would now have to charge them an additional 19% VAT on top of the existing sale price. This money is collected by me and then sent to the HMRC (the UK tax office) every 3 months,. There are around 28 EU specific regions, each having their own VAT rates. EVERY single country in the EU will need to be accounted for separately when I file my VAT return. That's over 20 pages, every 3 months, separate from the annual income tax return. Basically, it's an accountants worse nightmare.

It becomes even more insane because if this German fan was to buy my music while he was on vacation in France, then he now gets charged French VAT rates instead! This is because the VAT is specific to where the customer is located at the time of purchase, not their nationality! What if they're on a train at the time of purchase, travelling from Poland to Germany? Well, it is then determined by the country they were located in before they set off! Sounds ridiculous? Yes. Yes it is.

This isn't just a UK problem either. ALL countries are affected. If you live in the USA and intend to sell digital records to any country in the EU, then you too will need to pay VAT tax directly to the HMRC. Live in Australia or Mexico? You're affected too, sorry!

[url="https://www.gov.uk/government/publications/vat-supplying-digital-services-to-private-consumers/vat-businesses-supplying-digital-services-to-private-consumers#scope-of-rule-change"]https://www.gov.uk/government/publications/vat-supplying-digital-services-to-private-consumers/vat-businesses-supplying-digital-services-to-private-consumers#scope-of-rule-change[/url]

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So here's the problem. If you're an artist who sells on Bandcamp now, you will be breaking the law if you continue to sell your music after Jan 1st 2015 and don't charge EU customers their specific VAT rate. It doesn't matter if you sell just 1 record or thousands. If you charge money for your music, then you need to be VAT registered. Your only option is to either comply or remove your music from sale from the website, effectively killing your business in the process. Not just Bandcamp too, if you have your own website or use a similar service like Limited Run, then you also need to comply or risk prosecution for tax evasion. This will mean MUCH more paperwork and potential accounting bills, just to keep on track of things (and keep you out of court)

Now for music BUYERS (which is probably most of you reading this), if you live in the EU, then you are now going to be paying about 20% more in price for your digial music, games, videos etc.. As if prices weren't high enough!

In addition, the rules state that everyone who charges VAT must keep their customers data for 10 YEARS after the point of sale. This data will include things like your name, your address, your payment details, your IP address (to prove your location, remember?) etc... This was previously in the hands of the payment provider (like Paypal) but now it's also the responsibility of the individual company/label/artist to keep it too, in case of an audit! I don't need to tell you of the massive potential security risks that could and will happen as a result of this... Oh and we, the musicians, are charged £35/year to register with a data protection service to agree to keep your information safe. It might be even higher for your specific country.

Honestly, the whole situation is made 1000x worse because for many of us, this new law came like a bolt of lightning out of nowhere. Chances are that this is probably the first time you've heard of it. I literally found out about it yesterday and have been scrambling to read up and educate myself on it, so I wasn't breaking the law in a few days time.

~~~~~RECAP AND CONSEQUENCES OF THIS NEW LAW~~~~~

So here's the deal. From 23:59 on the 31st of December 2015, I will have to remove all digital music from sale from my [url="https://3six.bandcamp.com"]https://3six.bandcamp.com[/url] page, at least until I get my label VAT registered. It can still be streamed as normal, but you just won't be able to pay for it. It's either remove it all or set my entire digital discography to free (it's currently pay what you want for most albums, but I can't even use that now in case one of you decides to be kind enough to actually support me)

For my [url="http://www.3six.net"]http://www.3six.net[/url] website, I will also be forced to remove all digital downloads from any physical record you buy from me. If you buy a vinyl record or CD bundle from there (and my bandcamp page for that matter), it will no longer include the MP3/FLAC file, as this will be classed a digital service. Physical records on their own are currently unaffected by this, so I will still keep them up for sale as normal.

I have no clue as to how this will affect my new EP "Pulse Dive" which was due to be put up on sale next month. That release may have to be a vinyl-exclusive with NO digital download for the time being. Luckily, my site will let me add digital downloads to any order made retroactively, so when you buy the vinyl record and I eventually get my VAT registration sorted, you should be able to download the digital file immediately afterwards, with no extra cost.

I'm sorry, I know this is sh*t, but I literally can't do anything about this for the moment.

If you've made it this far, then like the rest of us, you're probably scratching your head thinking "WTF have I just read?". It's complicated, it's boring and it's a complete pain in the backside. Many of you are probably thinking this doesn't even apply to you, but the reality is, it's going to completely change the game for both buying and selling music. This new law is going to have a HUGE affect on the musicians and labels you know and love from January. I imagine that most of them, like myself, will have no choice but to remove their music either temporarily or permanently. The smaller, less-known artists will be hit the hardest. You, the customer, will be paying more for your music, and in an industry where convincing people to actually buy music is hard enough, it's going to be made even worse because of this ruling. It's a sh*t-show for everyone, basically, except the corrupt bureaucratic w***ers who run the European Union.

The communication from the government was dreadful and the burdon of responsibility ultimately falls on them to inform businesses about the new change to the law. I received no letters or emails from them. Sites like Bandcamp found out about this a month ago or so, but even they did email their users to let them know about it. Best yet, when I spoke to my accountant friend about this last night, even he had no idea what the hell MOSS was! We were all left in the dark, almost until it was too late.

Here are some websites with some additional reading, so you can get yourself fully-educated on the subject. Don't wait too long, because this all comes into effect from January 1st 2015!

[url="http://www.bmmagazine.co.uk/in-business/advice/need-know-vat-regulations-websites-selling-digital-downloads/"]http://www.bmmagazine.co.uk/in-business/advice/need-know-vat-regulations-websites-selling-digital-downloads/[/url]

[url="http://darkfloor.co.uk/eu-vat-darkfloors-bandcamp/"]http://darkfloor.co.uk/eu-vat-darkfloors-bandcamp/[/url]

[url="https://whitehall-admin.production.alphagov.co.uk/government/uploads/system/uploads/attachment_data/file/390300/VAT_MOSS_Flow_chart.pdf"]https://whitehall-admin.production.alphagov.co.uk/government/uploads/system/uploads/attachment_data/file/390300/VAT_MOSS_Flow_chart.pdf[/url]

[url="https://www.gov.uk/government/publications/vat-supplying-digital-services-to-private-consumers/vat-businesses-supplying-digital-services-to-private-consumers#eu-vat-rule-change"]https://www.gov.uk/government/publications/vat-supplying-digital-services-to-private-consumers/vat-businesses-supplying-digital-services-to-private-consumers#eu-vat-rule-change[/url]

[url="https://www.gov.uk/vat-registration/overview"]https://www.gov.uk/vat-registration/overview[/url]

[url="https://www.gov.uk/register-and-use-the-vat-mini-one-stop-shop"]https://www.gov.uk/register-and-use-the-vat-mini-one-stop-shop[/url]

Finally, here is a petition to call for the intervention of this new law for businesses under the current VAT exemption Threshold. SIGN IT.

[url="https://www.change.org/p/vince-cable-mp-uphold-the-vat-exemption-threshold-for-businesses-supplying-digital-products"]https://www.change.org/p/vince-cable-mp-uphold-the-vat-exemption-threshold-for-businesses-supplying-digital-products[/url]

Thanks for reading.

[icastle]

So how is someone supposed to know that someone using their German credit card to buy online content in France is actually in France?

Typical of the 'just do it' rubbish, with no consideration of the practicalities, that seems to have become the 'standard' over the last few years.

One can only hope that someone with half a brain eventually realises that it's costing them £2 to collect 20p and scraps the idea.

[ambient]

Not the case now - [url="http://blog.bandcamp.com/2014/12/30/eu-digital-vat-changes-and-bandcamp/"]http://blog.bandcamp...s-and-bandcamp/[/url]

It was also, to my understanding anyway, it was if you sold via [i][b]your[/b][/i] website, that didn't include iTunes, Amazon, Bandcamp etc.

Edited January 2, 2015 by ambient

[pfretrock]

Another stupid EU ruling forced upon us. Petition signed:

https://www.change.org/p/vince-cable-mp-uphold-the-vat-exemption-threshold-for-businesses-supplying-digital-products

[EssentialTension]

There is already a thread on this topic but I cannot find it while on iphone.

[Bassman Steve]

I can speak with a little authority (as an ex VAT man).

It sounds like a pain now but a guy who can handle a digital studio will not have any trouble with an Excel spreadsheet. Also, if you are not VAT registered you are forking out VAT on a whole load of things. When first registered, you can claim back the VAT on any goods you have on hand when you register - going back 4 years.

You're not going to change it so why no consider the advantages of being VAT registered. I'll give answers happily, when I am certain of the facts. Do not ever make the huge mistake of listening to the man in the pub ad forming your opinions on that basis.

Edited January 2, 2015 by Bassman Steve

[Bassman Steve]

By the way, you re fundamentally wrong to say it's the Govt's job to inform you - the law is clear. It's yours to find out and charge correctly.

[ras52]

Without disputing that this sucks, one minor point: the VAT registration threshold is on gross turnover rather than earnings/income. Not that that affects yer average microbusiness that's going to get hit by this.

The law was apparently designed to stop businesses in high-VAT countries avoiding tax by "operating" in a low-VAT country. To see this as A Bad Thing is fair enough IMO, but the method chosen is a sledgehammer that cracks not only the nuts it's designed to hit, but also all of those small business that politicians keep going on about helping.

As noted, it won't be cost-effective to collect the pennies from the micro-businesses, and I wouldn't be surprised if the HMRC turn a blind eye to the minnows. I used to be a freelance software developer through my own company (employees: one) and I remember being randomly selected for an inspection, and the HMRC officer grumbling through it about they shouldn't be bothering with me when there are bigger fish to fry.

Interesting times!

Edited January 2, 2015 by ras52

[Bassman Steve]

Yes, registration limit is based on business turnover (not profit as many think).

[Diablo]

From HMRC:
[quote]You need to identify the place where your consumer is based, has their permanent address, or usually resides. This will be the member state where VAT on the digital services supply is due.[/quote]

So if they are on a train somewhere it does not matter, it is there home that counts, not their actual location at the time of purchase.

It does seem an unbelievably difficult and complicated system. I'm VAT registered and do worldwide mail order plus sell to consumers and businesses so I get the EC Sales List every qtr along with all the other VAT paperwork to deal with. The way I deal with VAT now, being I don't need to charge it to people outside of Europe if I ship goods directly to them, is to charge everyone the same headline price. When I do my accounts I work out which are vatable and which aren't. If the goods were shipped outside of Europe then I don't need to pay any VAT back so in effect I make more profit on those transactions. I had my website set originally to work out VAT or not and separate it all out on automatic invoicing but the setup of it was an admin nightmare. Much easier to just go set price on the web and sort out the VAT yourself away from the customer transaction. IMHO anyway.

There will be loopholes come out of this though. I have not fully researched it but I think if someone buys your music any pays, but you have to physically email the file or a link to them, then it is outside this tax law. Or if a customer buys some music, gets an instant download, but you physically post them a copy too then it is goods and not digital. Just keep your ears open for the loopholes being found and I'd suggest taking some accountancy advice.

Cheers,
Rich

[Bassman Steve]

You charge VAT at the rate of your customer. Before this came in, you would have charged non-UK customer UK VAT of 20%.

[ras52]

[quote name='Bassman Steve' timestamp='1420223613' post='2646912']
I can speak with a little authority (as an ex VAT man).

It sounds like a pain now but a guy who can handle a digital studio will not have any trouble with an Excel spreadsheet. Also, if you are not VAT registered you are forking out VAT on a whole load of things. When first registered, you can claim back the VAT on any goods you have on hand when you register - going back 4 years.

You're not going to change it so why no consider the advantages of being VAT registered. I'll give answers happily, when I am certain of the facts. Do not ever make the huge mistake of listening to the man in the pub ad forming your opinions on that basis.
[/quote]

Interesting... but surely it's not the case that if sell a single download including VAT of say 10p, but have paid out £100 of VAT in creating the track, I'm owed £99.90?!?

[Bassman Steve]

Rich, I think you are on sticky ground (technically) because VAT is added to prices. Unless you advertise that range of prices HMRC would expect 20p on a £1 sale, not 16p from it.

[Diablo]

[quote]Interesting... but surely it's not the case that if sell a single download including VAT of say 10p, but have paid out £100 of VAT in creating the track, I'm owed £99.90?!? [/quote]

Yes that is true. Pretty much every quarter I reclaim movey from HMRC for VAT as I spend more than I bring in given my main customers are businesses in Europe so I zero rate them on the sale and declare it on the EC Sales list. Bear in mind though in your example you'll have already physically paid the £100 out, so you are not getting free money, just back the difference between what you paid out vs what you took in during that qtr.

[Bassman Steve]

As Diablo says, that's exactly how it works. There a whole load of people who always get VAT back - greengrocers for one.

[ras52]

I meant if the VAT I've paid out in creating the track (added to studio rates etc.) is now reclaimable, that is likely to be in excess of the VAT I collect though micro-sales.

EDIT due to replies coming in sooner... yes, so music-[b]making[/b] becomes potentially cheaper as our costs become VAT-reclaimable, but at the price of increased admin, and music-[b]selling[/b] goes the other way as we either absorb the VAT or pass it on the the customer.

Edited January 2, 2015 by ras52

[Diablo]

[quote]Rich, I think you are on sticky ground (technically) because VAT is added to prices. Unless you advertise that range of prices HMRC would expect 20p on a £1 sale, not 16p from it. [/quote]

Not according to my maths. I advertise gross prices only. If I sell an article for £1 to a UK or European based customer that is £0.83 to me and £0.17 to HMRC for the VAT. If I sell the same thing and ship it to the USA for example that is £1 to me and nothing to HMRC. The gross price is £1 either way but in effect I adjust the net price depending on customer location, which I can do, I can charge anyone anything I want for goods or services. My chartered accountant has been okay with that since I set up in 2008 and I turn over between £100k and 200k pa.

I also deal with used goods under the VAT margin scheme so do a lot of VAT paperwork, but it has always survived auditing.

[Bassman Steve]

Indeed. VAT is not about profit. It's designed to be neutral for businesses.

In theory, the customer gives you the VAT you pay over and you now get back the VAT on your costs.

[ambient]

I price mine on Bandcamp so the buyer pays what he/she wants. I have no way of adding VAT onto the price, seeing how I don't know how much they're gonna pay

I also use an artist name on all my stuff, and I doubt I've made more than a few hundred in the last 4 months anyway, would it really be worth HMRC's time and money in trying to discover who I actually am, in order to claim a few pounds off me ?

[Bassman Steve]

Ok, I guess you advertise your prices as being tax inclusive. Margin schemes are different because the VAT is driven by the margin so the price is always VAT inclusive.

[Bassman Steve]

I understand Bandcamp are stating they'll do all the VAT and you do nothing but I haven't read that anywhere. If you only sell via Bandcamp I guess none of this affects you.

[Bassman Steve]

With huge respect, most chartered accountants know nothing about VAT - I was frequently their outsourced VAT function.

[ambient]

[quote name='Bassman Steve' timestamp='1420225205' post='2646955']
I understand Bandcamp are stating they'll do all the VAT and you do nothing but I haven't read that anywhere. If you only sell via Bandcamp I guess none of this affects you.
[/quote]

See my earlier post, but here it is again

[url="http://blog.bandcamp.com/2014/12/30/eu-digital-vat-changes-and-bandcamp/"]http://blog.bandcamp.com/2014/12/30/eu-digital-vat-changes-and-bandcamp/[/url]

[skej21]

[quote name='Bassman Steve' timestamp='1420225205' post='2646955']
I understand Bandcamp are stating they'll do all the VAT and you do nothing but I haven't read that anywhere. If you only sell via Bandcamp I guess none of this affects you.
[/quote]

The link is in an earlier post but here it is again :-) http://blog.bandcamp.com/2014/12/30/eu-digital-vat-changes-and-bandcamp/

[Diablo]

[quote]Ok, I guess you advertise your prices as being tax inclusive. Margin schemes are different because the VAT is driven by the margin so the price is always VAT inclusive. [/quote]

It is always interesting to get an insiders view on tax/VAT though, it is something you don't generally go looking for! Thanks for your input.

VAT margin is onerous due to having to keep records for every single item, but you've just got to suck it up and do it. The time it runs into problems is when selling a used part for a profit to a European business who want it zero rated. In that case I don't do it as it shows my profit margin to them.

[quote]With huge respect, most chartered accountants know nothing about VAT - I was frequently their outsourced VAT function. [/quote]

I thought the general idea was to find an accountant that knows nothing about your line of business, it cuts down on all their questions every year end as in "why does a dog groomer need 12 bottles of whiskey each December" **

** I don't run a dog groomers, it was an amusing example of the accountant scenario, not based on real events.

Edited January 2, 2015 by Diablo