The latest guidance (?) from HM Revenue & Customs on new EU taxation for digital products

Firstly, apologies to those finding all this stuff about VAT tedious and/or confusing. But it really does matter, and not just to authors trying to put out their own ebooks. Independent digital versions are increasingly the only way for readers to get hold of backlist titles and ebooks without DRM constraints.

Okay, here’s what little useful information I gleaned from yesterday’s HMRC Customer’s Twitter Clinic.

Let’s start with one definitive answer – which will interest the US authors of my acquaintance who sell direct or through co-operatives like Book View Cafe.

A Canadian knitwear designer asked
Question – As a Canadian selling online knit patterns, do I really have to track & pay #VATMOSS on the ~ 40 patterns/yr I sell in UK&EU?
Answer – Yes, if a digital service. Consider non-union MOSS scheme

So the next question obviously becomes – what is a digital service?

According to HMRC – “An e-service is one that is fully automated and involves no or minimal human intervention”.

So anything that’s an electronic product – ebook (fiction, non-fiction), music, training material, computer game, knitting or other craft pattern, the list goes on – that is delivered by any automated payment and download system falls under this legislation.

Okay, so what does ‘minimal human intervention’ mean?

At this point, HMRC’s answers started coming prefaced with ‘It depends’…

Q – Someone donates to my company in return for a digital “perk” (eg: through kickstarter or Patreon ) Do I need VATMOSS?
A – It depends on the nature of the perk.

Q – Are one-to-one web & graphic design services considered a e-service? Will this affect me as a freelancer?
A – Depends on whether the customisation is automated or involves human intervention. If latter, no.

Q – so web designers that design custom websites for clients are free from VATMOSS then?
A – Depends on whether the customisation is automated or involves human intervention. If latter, no.

Further clarification (I use the term loosely) from HMRC followed –“ “Minimal human intervention” is where a person takes some physical action for the service to take place.”

plus

“Emails & attachments are included if generated automatically by system following customer inputting their details and payment.”

But –

Q- If I sell a physical doc to EU buyer but then give them access to a free PDF version of it, do I incur VAT?
A – The new rules don’t apply.

And

Q – If a PDF copy of pattern/ebook is given complimentary with purchase of a physical copy of pattern/ebook is VAT owed on PDF?
A – No, it will not be subject to VAT.

Moreover, according to HMRC –
“Live webinars not e-service. If pdf and follow up recording are included in charge, will be treated same way as webinar…

If there is a separate charge it will depend upon whether the pdf or recording is an electronic service…

Virtual classroom combining live webinars, videos, pdfs would not be an e-service because of amount of human intervention involved.”

So we’re back to wondering what does or does not constitute the required level of human intervention.

Q- Does emailing with an attachment count as ‘human intervention’ when selling through a platform such as ETSY?
A- If they are physically submitting the email and it is not an automated process.

Q – But if the purchase is automated (ie via ETSY) and then I physically send the PDF in an attachment?
A- Payment service irrelevant to determine whether e-service.

Q – To be clear, regardless of how you’re paid, if you hand send out the download emails, it’s not an e-service?
A – That’s correct.

Similarly –

Q- Does that mean if I go back to the dark ages and manually send a download by file transfer it is exempt?
A -Manual downloads will be exempt.

Q – So even if I’m sending the exact same file to all customers as long as I do that manually myself I’m OK?
A – Yes, as long as email not automatically generated and you manually send it.

However –

Q- What about videos? If a customer purchases to get access to private videos (hosted on say YouTube or Vimeo)?
A – Sending the password manually by e mail does not constitute an electronic service so the new rules don’t apply…
However, if the service they are logging into is an e-service then it would be affected by the new rules.

Also –

Q – If sell a product & the user is redirected to a receipt page and they MANUALLY DOWNLOAD it, that’s human intervention, yes?
A – It is the provider’s manual intervention not the customer’s that is important.

So you can only avoid all this mess as a seller only by manually hand processing all orders and emailing files to customers.

Unlike for instance, Amazon who will continue to offer instant one-click payment and downloads. Right, so that’s going to make a customer’s choices pretty easy, eh?

Which brings me to the question of Amazon and other platforms like Etsy etc.

Q – How are devs selling apps on AppStore / GooglePlay into EU affected? Do the stores handle VATMOSS, or is it up to the dev?
A – Yes, App stores and marketplace will be responsible for VAT on dig services sold through their platforms.

Q- If u sell digi products via 3rd party platform but host selling buttons on ur own site do you have to register for VAT?
A- If providing a link to a third-party platform, no. If you sell through your own site, you would have to register.

Q – Can you provide approved list of 3rd party intermediaries that we can use instead of VAT reg?
A – Any sales platform is responsible if they initiate delivery or authorise payment process or set T&Cs.

Q – what if your third party platform disputes liability? Who is responsible in the meantime?
A – The third party platform is responsible

Q – what defines a third party platform and marketplace and what’s the difference between them?
A – A simple definition is that if a marketplace is responsible for authorising/allowing the download it is responsible.

Seems clear enough? Until people started getting into specifics

Q – Does this mean that the patterns I sell on @beCraftsy , @ravelry , and @EtsyUK are their responsibility for VAT?…
If I decide to sell via those platforms how can I be sure I am complying with law by leaving VAT to them?

Q – I believe you’re saying @beCraftsy @EtsyUK, etc are responsible, yet they say they’re NOT???

Q – I assumed that Paypal was more a payment processor than a marketplace.

Q – If ur PayPal account is linked to 3rd party, but the 3rd party provides order & delivery service, who pays VAT?

Q – What if one system initiates delivery (@fetchapp) and another authorises payment (@PayPal)? Which is responsible?

Q – But they authorize payments. I use Ravelry’s website to list patterns for sale, but PayPal handles the $.
Q- Are @gumroad included here? They said they are not but payment goes through them.

If there have been any clear answers to any of these questions, I have yet to see them.

And this is before we get into the considerable confusion of how traders with minimal turnover go about voluntarily registering for VAT in order to comply with VATMOSS. There are already reports of those who’ve tried being turned away as ineligible.

Another good question is how the advice to separate UK and EU trading into two separate companies despite both being part of the same overall trading business squares with other HMRC warnings that doing precisely this will be considered attempted tax evasion.

Reports are now coming in of small traders and companies simply abandoning e-commerce because of the complications and uncertainty, and also, the fact that getting it wrong will leave people liable to potentially unlimited fines.

At the moment, all my own e-publishing projects planned for 2015 are on hold. That’s the ebook editions of the Aldabreshin Compass series, The Ties That Bind novella and a related collection of short stories, and also a new urban fantasy novel. Because preparing those would require up-front investment of around £1500 from me for various art, map, editorial and other technical services.

Because I cannot get anything remotely resembling a clear answer on whether or not small presses are still/also liable for complying with these new EU VAT regulations as being part of a supply chain between the author and Amazon.

Until the small press I work with knows for certain what their liabilities will be, they cannot assess how/if to stay in business.

Clearly, if I was only publishing via Amazon, I’d be fine. But I do not wish to publish my ebooks with Amazon Kindle Direct Publishing as their terms and conditions are non-neogotiable and subject to change by them, at any time, without notice.

Publishing with a small press means I can negotiate a mutually satisfactory contract and also that small press can make my ebooks available via a range of outlets and in both .epub and .mobi formats rather than exclusively through Amazon.

So that’s where we’re at.

Is it too early for gin?

7 comments

  1. Thank you for your easy to understand article. I now feel confident that it will be OK for me “go back to the dark ages” and manually send my digital embroidery patterns to a customer as an email attachment.

    1. Unfortunately, this seems not to be the case. The point has, it seems, been clarified by Andrew Webb, an HMRC official, in a seminar:

      ‘Webb very clearly clarified that … any file sent via the internet that a customer has paid for constitutes a digital service including files that are manually emailed.’

      The confusion arose because HMRC staff have difficulties writing clear English. When they said, “Merely communicating by email and sending attachments does not constitute Digital Services,” their ‘intention was to prevent businesses who sell physical goods, take hotel bookings online, etc from thinking that this would apply to them if they provided email via customer service’.

      See http://ysolda.com/blog/2014/11/26/they-didnt-know-the-impact-of-vatmoss-on-really-small-businesses

  2. That seminar was before the Twitter clinic, so do we take that as a change of heart or as merely evidence of the ongoing confusion surrounding all this?

    That point was pressed hard during the Twitter clinic & HMRC repeated their position that manual file mailing was okay several times.

    But there’s other contradictory advice floating around, and no clarification on questions such as whether or not splitting UK & EU trading is now okay, not, as previously insisted, attempted tax avoidance.

    And there’s still no clarity on which online venues may or may not be compliant 3rd parties. Whatever HMRC may say, several are already insisting they’re not and no one I can find has had any answer from Amazon. Whose lawyers and accountants are no doubt working out how to turn this to their best advantage as we speak.

    It’s an unholy bloody mess.

    1. That seminar was before the Twitter clinic

      I’m very sorry, I failed to notice that. — I just can’t believe the way HMRC keeps changing its advice. Thanks for all the links and the summaries.

      1. Yes, though apparently the advice outline here – and on the official website – is still being contradicted by HMRC folk out and about running face to face seminars. Headdesk!

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