Over the last few weeks you might have heard about new EU legislations that have come into effect on January 1st, 2015. This legislation affects both sellers and buyers of digital goods. Buyers now pay the VAT rate of their country, opposed to the country they are buying from. For example: A Dutch shopper buying from a UK shop will now have to pay the Dutch VAT level, even though the shop he’s buying from is located in the UK.
Do you sell digital goods on Etsy?
For many years I’ve been an Etsy seller. The Etsy marketplace has so far failed to come up with a sattisfying answer to its sellers on how to tackle the VAT problems. Etsy believes that it is the responsibility of the sellers to collect VAT. When reading through the statements released by HMRC however, it clearly shows that Etsy as a marketplace is the one responsible for collecting VAT. Furthermore, Etsy so far has not offered any tools or solutions for you to collect or calculate VAT when you use their marketplace.
The few suggestions Etsy has come up with is to stop selling digital downloads to EU customers, or stop offering direct downloads and email the files to your customers, as an email is currently non-taxable. For many businesses, this is not a practical sollution, as you would have to restructure your entire Etsy shop. As a result, I have had to momentarily stop selling through Etsy. At the same time, I have my own website, which has been running for a couple of years now. On this site I have used a combination of tools and plugins that allow me to offer digital downloads, and comply with the new legislations. I have listed the steps that I have taken, in the hope that they may be useful to you.
How to comply with EU legislations on your own site
For this to work, you will need your own website.
Step 1: Choosing a site
My site runs on WordPress, with a theme that incorporates WooCommerce. It is extremely user friendly, and gives you all the tools you need to set up a professional online presence. My website is hosted by Clook, a very reliable UK webhosting service that offers great hosting packages and domain registration.
Step 2: How to collect VAT
To collect VAT and comply with the new EU laws, I installed the following plugin: WooCommerce EU VAT Compliance (Premium) Among many great features, it automatically collects the right tax amount, as well as providing you with the proof you require (one valid billing address + IP address). This is a brand new plugin, and so far it seems to be the best solution to collect EU VAT. It also collects all required details in neat reports, which will make doing your tax returns a lot easier!
Step 3: Register for VAT MOSS
Once all this is in place you will need to register for the VAT MOSS scheme. The HMRC website offers some very detailed instructions that can help you make sense of the registration process. As someone who is completely new to this side of my business, I found it a relatively straightforward experience.
Step 4: Let your customers know!
The last thing you might want to do is let your customers know that you have moved. You might have built up a loyal customer base over the years on Etsy, and it is worth letting them know where you currently are. Mailchimp is a fantastic service that allows you to set up professional newsletters.
As this ruling has affected thousands of small independents, I’m curious to hear what steps you have taken to deal with this problem. Let me know in the comments what you think of my steps, or how you are dealing with it!
Disclaimer: These are steps that I have taken. If you have any doubts or questions, please consult the HMRC website, or speak to an accountant.