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.
9 comments
What a great solution, I’ve used WooCommerce for about 3 years now and it’s a wonderful tool to have when owning your own site. I found the WooCommerce Taxamo is a much easier and more affordable to use since I’m a US based business. Good luck with your new site.
Thank you Katrina! I agree, for US based websites WooCommerce Taxamo is brilliant. I did have a look at this when I was doing my own research, but went with for the solution I described in my posting as this seemed more EU oriented, whilst also being quite affordable. It sure is a headache! 🙂
For UK-based sellers that prefer to stay with platforms such as etsy, I think it’s important to read the UK HMR&C guidance here:
http://tinyurl.com/kqevjss
See the last item, “Digital portals, platforms, gateways and marketplaces”
“If the platform operator identifies you as the seller but sets the general terms and conditions, or authorises payment, or handles delivery/download of the digital service, the platform is considered to be supplying the consumer. They are therefore responsible for accounting for the VAT payment that is charged to the consumer.”
Huw – you are absolutely right. The only problem Etsy sellers are facing at the moment is that Etsy has taken no steps whatsoever to take this responsibility. VAT is completely not calculated on Etsy – however, Etsy’s stance on the matter is that sellers are responsible to pay said VAT themselves. Etsy so far has made no futher comments, which as meant for a lot of sellers of digital goods that, to comply with the new regulations, they’ve had to either shut their shop temporarily, or take digital downloads down until a later time. Let’s hope that marketplaces like Etsy will sort this out soon, and take their responsibility!
Dear Jacob
I picked up your link on the etsy blog about this – wonderful reading your article and that you have found a way to do this – are you in UK? (I’m in Swansea area) The exemption mentioned in etsy, if you take off the digital download, and physically email the file ONLY applies to UK sellers.
I also use wordpress for a blogging site see: julzcrafts.wordpress.com
where I will soon put up a post about this issue, hope you don’t mind if I link this blog to it when I do? Will have a look at your shop site, not come across this part of their services.
Currently, I only put a toe in the water with digital downloads on etsy, put up a couple of photographic ones, but in a spinning & weaving based site, so didn’t expect them to sell – and have not yet had to worry about this. But why I am interested is that I had intended to open a separate shop on etsy, specialising in photography and digital downloads – so have had to put all the plans on hold.
I actually think these regulations are VERY badly drafted and have signed every petition I can find about them. I think they were initially conceived to get the big fish, like Amazon & Sky, who will probably find a way round it anyway, and instead have caught sprats – if you don’t mind the analogy!
Just when small businesses are becoming the engine of economies all over Europe and elsewhere, this is putting a damper on them, and I don’t think any of the hundred of legal drafters involved in this law ever even contemplated the consequences.
Have written to my MP – and Money Box to ask them to do an issue about it – probably won’t hear from either of them – but its strange that there was nothing in the media about it come new year? Seems to be the best kept secret around!
Sorry to go on so long, but the incompetence of it all annoys me, and its nice to see someone who’s got it sorted out!
(have signed up to your mailing list – I think!)
Hello Julz!
Thank you for your response! I’m indeed from the UK, York in fact.
It is a very, very poorly thought out law… Like you said, it’s just hurting the little man and it’s not going to affect the big boys, as they’ll have had their lawyers on it for months. They will have found some loophole to avoid tax, as they always do, and it’s up to us to cough up the dough.
It’s so good that you’ve taken so much action – I found out too late about the writing to your local MP action plan before the new year, but I have signed quite a few petitions and would recommend anyone reading this, to do so as well. It has been very quiet around this issue: it’s a great thing that you have written to Money Box as I can definintely see them doing a feature. Keep up the good work, and let’s hope this mess is over soon!
hallo again Jacob
I’ve only just found your reply. I have to say that so far, neither my MP nor Money Box have got back to me – I wrote just after xmas, so there was bound to be a delay, but still, its disheartening.
In the interim I have put a post up on my blog
https://julzcrafts.wordpress.com/2015/01/15/vat-moss-on-digital-downloads-designed-to-catch-the-big-fish-but-only-catching-the-small-fry/
which just gives an introduction to the issues for people who don’t know about it.
I have also included links to all the relevant authorities, if people choose to click them.
As I though I hadn’t heard from you, I didn’t mention this blog but your are welcome to leave a link to it in my comment box!
all the best
julz
I just start a site to sell digital goods, i am in UK and not vat registered. Do I need to collect Digial Good VAT for UK customers? Thanks
Hello Cheng – if you sell digital goods available as direct downloads, then yes, you are required to collect VAT for any customer from a EU country. If you sell to a customer in the UK, you do not have to pay VAT. As a store selling digital goods, you will require to register for VAT (even if your turnover is below the VAT threshold). There is more information available on the HMRC website, and I would recommend looking up the VAT MOSS (Mini One Stop Shop) scheme: this means you calculate your own VAT per country, and then pay HMRC based on your calculations. HMRC then pays each individual country the VAT that is owed to them. I hope this has been a little bit helpful for you!