Anyone in the EU who sells digital files should now be aware of the changes in VAT legislation that come into force on 1 January 2015. There are details on HMRC's website.
This has had a big impact on my plans for developing the knitting patterns that I have so far designed. I currently sell them on Etsy, as Folksy does not provide a platform for digital downloads. However, Etsy has been extremely tardy in its information to sellers and only a few days ago announced that it would not be handling the VAT on behalf of European sellers as it believes that is our responsibility. Unfortunately, HMRC and the rest of the EU disagree.
In short, I cannot comply with the EU directive by myself. It would mean collecting 2 non-conflicting items of evidence for the purchaser's address, and storing them for 10 years on an EU approved secure server, as well as submitting VAT returns every 3 months covering all of my sales (not just the digital patterns). Up to this point, the VAT threshold has been £81,000 for small businesses; when you make less than that each year you are not required to register for VAT. From 1 January 2015, there will be no threshold for digital sales, and the EU is hoping to extend this to physical items as early as 2016.
For micro businesses across the EU this is a disaster. There are several petitions which you can sign on Change.org. The EU-wide petition is here: Change.org EU petition for suspension of VAT changes and you can read up on the comments on Twitter using the #VATMOSS hashtag. Other seller platforms such as Ravelry and Folksy have been meeting with HMRC over the past couple of weeks to bring to HMRC's attention how the changes will impact small and micro businesses. It is sad, but not surprising, that the EU commissioners did not thoroughly investigate the impact since the changes were first announced in 2007.
However badly the directive has been constructed, it will still come into law in a few days time. This means I have had to re-think how I sell my knitting patterns now and in the future. I have been looking at other platforms - some that currently focus on ebook sales as the VAT directive affects them too. I'm now feeling more positive than I was a week ago; I have a platform I can use who will also handle the VAT on my behalf, and it has spurred me on to continue to design and develop more patterns and offer them in different formats.
Until I have my own website, I will list my patterns for sale here on my blog, under the Hare's Moon page over on the right. The link will take the buyer through to Payhip.com where you can purchase the pattern simply and easily using PayPal. I will also be working on collections of patterns, rather than single items. These will be for sale via Payhip and by CD mailed to you. Stay tuned for the release of these pattern collections later in 2015.