10 hours ago
Tuesday, 25 November 2014
PDF patterns and e books - and new VAT legislation
I've often been asked if I will be releasing any of my patterns as downloadable pdfs. So far, it has really just been a question of time and getting my website sorted that has prevented me doing this. But from January 2015, the UK chancellor, George Osborne, is set to bring in new VAT regulations that will make it impossible for me to sell pdfs from my website without a lot of problems - read about the new VAT regulations here.
While it seems that these new regulations were designed to hammer the giants like Amazon, an unforseen consequence is what it will do to quilt pattern designers. Unless there is an exemption made for non-VAT registered businesses, as almost all sole trader quilt designers/teachers are non VAT registered, we will be unable to sell pdf pattern downloads.
I'll explain. At the moment, businesses in the UK with a low turnover (anything under £70,000 for distance selling at the moment, not £81,000) don't need to register for VAT. I don't know of a single quilt tutor/pattern designer who is VAT registered, for that reason. Being VAT registered means having to complete more admin, in the form of quarterly VAT returns, and most likely employ an accountant to do it - so more business costs.
If I were VAT registered, I would be able to reclaim the VAT on things I buy for my business - supplies, sewing machine servicing, that kind of thing. Those outgoings are actually fairly low. However, I would have to charge VAT on all my products and services. As UK VAT is 20%, that means I would have to charge more like 25% on my talks and workshops to get the same amount of income after VAT is paid as I do at the moment. It isn't worth my while to register to be able to claim back VAT on my outgoings, as the VAT I would have to charge my customers is so much more. It would mean my workshop fees going up to £250 per day next year and my talks to £137. It isn't worth it.
At the moment, I don't sell pattern pdfs or e books, although I would like to sell both in future. So easy and convenient for people to download them and I can sell internationally without having to post things out - great when postage costs have got so high in recent years. But if I sell to Europe, I will have to charge VAT at the rate in the buyer's home country and pay that part of my income to their VAT authorities (not the HMRC in the UK). So if I sell a pattern to someone in Germany, I will have to complete VAT returns for Germany - for one pattern sale. But if I sell to someone in Hungary, I will have to do it again - another return to the Hungarian VAT man. If I sell one pattern in Denmark, I'll have to deal with the Danish VAT man... and so on. Suddenly, I could be having to complete VAT returns for LOTS of European countries. That's an impossible amount of admin for me! If I accidentally missed one return, I could be fined. I can't do that kind of admin!
There is a way out of having to deal with the VAT man in every country independently. I could sign up for the MOSS scheme with the HMRC and deal with all my EU VAT in one go - although the UK return would still have to be done separately. So what is the catch? I can't sign up for MOSS without being VAT registered in the UK. If I become VAT registered, I will have to increase the prices on everything else I do, AND have a whole load more admin to boot. I know it is a different situation in many EU countries, where all businesses have to be VAT registered, but it is different in the UK and quite frankly the quilting market here could not absorb the extra costs.
This new legislation covers all pdf downloads and e books. It is designed to tax the giants like Amazon, not people like me. But there is no loophole to allow small, non VAT registered businesses like me to sell pdfs and e books to Europe without signing up. Yes, I can still sell to the UK and outside the EU, but if I put pdfs on my website, how can I stop someone in Europe buying one?
Until I know how this will be resolved, I can't make plans to sell pdfs or e books myself. It shouldn't affect me for e book sales via my publishers because I only get royalties from them and I am not the sellers. I was hoping to add both pattern pdfs and e books to my list of future projects, but I might have to axe that. It could have significantly increased my business turnover and increase my sales in the USA and Australia, but I will just have to shelve the idea.
This new legislation is going to have unintended consequences in stifling innovation in downloadable content from the UK, where at present both e books and pdfs are zero VAT rated. Ever read those stories about how some enterprising young teenager makes a small fortune from designing an app and selling it online ? They'll have to forget it now, unless they want to be signing up to pay VAT. Want to let others buy your local history e book? You'll have to be VAT registered!
There is an online petition to have non VAT registered UK sellers exempted from this regulation - please sign it here (sorry, I have no idea why is is displaying in German!) Also, I had the following message from Change.org yesterday, so if you have a Twitter account, please take part today. Thank you!
UPDATE - #VATMOSS trended on Twitter for five hours yesterday, and the issue was covered in The Guardian, among other things. The Guardian article shows that HMRC haven't got a clue about how many sole traders sell pdfs. The very idea that there are people out there scraping a living by selling crochet* pattern pdfs seems to be something they fail to understand. *for 'crochet' just swap 'knitting', 'quilting' etc. They will force micro businesses like me to stop selling or shelve future plans for pdf pattern sales which, let's face it, would mainly be selling to English speaking countries outside of the EU anyway, unless we can find a way to block EU sales outside of the UK. I really hope this legislation doesn't come into force for non VAT registered UK businesses.