An EU VAT update – and a call for action.

As the holiday break draws to a close, Cheryl over at Wizard’s Tower Press spends yet more of her valuable time sorting out the complicated mess which these new EU VAT regulations have made of our pricing – as well as forcing all of our sales through third parties who all take their hefty cut. So readers will be paying more while all of us involved in making these books available earn less for them.

Meantime, I’m working with the EU VAT Action team to do all we can to create pressure for the changes we need, to get this legislation reviewed and revised from the ground up.

The more voices speaking up, the better the chances of meaningful action. So there are a couple of recent posts over at Digital Microbusiness Action Group on new targets for your letters.

If new EU VAT rules affect you, please help us prove it.

For those of you playing the VATMOSS game at home, we very much suspect that HMRC, Treasury and other relevant departments, here and in the EU, keep telling themselves that the number of businesses badly affected by all this is too small to be significant, and thus, there’s no need to alter their plans.

We need to convince them that absence of evidence is not evidence of absence.

Please complete this survey. It’s quick and easy to do and anonymous.

Please spread word of it as far and as fast as you can. The more hard data we can gather, the stronger our case will be.

There is also a new online petition to bring all this to the attention of Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs. Please sign it and spread the word!

Also, Friday 12th December, this story will be featured on BBC Radio 4’s ‘You and Yours’ programme. If you can listen in, great. If not, catch it later on iPlayer. Most important of all, tweet, email, contact the programme by whatever means you prefer, to let them know this really is a massive issue.

For those of you who’d much rather be reading about wizards, dragons, fantasy fiction, creative writing or any number of other things, my sincere apologies. Trust me, I’d much rather be writing about that sort of thing too. I will try to find time to be more interesting soon!

A brief note about Vince Cable’s response to the VATMOSS petition

I’ve posted my thoughts on Digital Microbusiness Action Group, the little blog site I set up to see how many folk I could gather together, since all my pals with campaigning experience reckon working collectively carries more weight than individual voices.

The more voices in a group, the more weight it carries. If this concerns you directly as someone engaged in small scale e-commerce, please consider signing up. No fees, no obligations, no pack drill. It’s a place to find information for yourselves and to help supply (minimal) information to the government departments who’ve been making such far-reaching decisions on what’s demonstrably been inadequate knowledge.

That’s it for today.

Why new EU VAT legislation is bad for ebook readers and writers (if you’re not Amazon)

I don’t know anyone in the book trade who doesn’t want to see Amazon pay a fair rate of tax. Gaming the existing system is one reason why they’ve been able to wreak havoc across the industry with predatory pricing and other tactics. Making them pay fair taxes would go some way to levelling the playing field. Unfortunately the way this is now being done will cause a lot of collateral damage. The further you go down the publishing scale, the worse the damage becomes.

This new system’s* been set up on the assumption that the majority of ebook sales are through third party vendors. That is perfectly true. Amazon in particular has a grip on that market which is now set to become a stranglehold. Because it’s nowhere near the whole story. It’s become very apparent that the authorities who set all this up have been missing a big piece of the picture. (Yes, I know I’m mixing metaphors.)

Firstly, yes, Amazon – and Google Play, and iBooks – all take a hefty cut of any revenue from the ebooks you sell through them, 30-70% depending on the deal you sign up for. Which is a non-negotiable deal, let’s not forget. You tick a box agreeing to Terms & Conditions which they can vary at any time, as they see fit. Unless you’re Behemoth Books, in which case you can negotiate your own terms, but no one without that kind of clout can hope for anything better.

Also, to use a couple of mythical examples, if you’re Behemoth Books, dealings through Amazon will be a big chunk of your business but you’ll have other revenue streams, notably but not limited to hard copy sales. But Back Bedroom Books of Chipping Norton, who’s an entirely digital publisher, maybe aspiring to offering print on demand editions one day in the future? Sales through these 3rd parties are a much bigger share of their total income, as the price for visibility and availability via Kindle or Nook or whatever.

At the moment at least, Back Bedroom Books can also offer .epub and .mobi files direct from their own website and keep all the revenue. They can do that for a short, exclusive period before the book goes to wider distribution, letting valued customers and a writer’s most loyal fans know where they can get the new book first, thus getting the maximum benefit from that first rush of sales. The customer pays the same price in the end after all, so readers don’t lose out. Those direct sales matter, and the smaller the operation, the more they matter.

But as of 1st Jan 2015, Back Bedroom Books and its equivalents will have to shut their online stores. For some operations, that’ll put enough of a dent in their revenues that they will no longer be viable businesses. So their anthologies showcasing and supporting new authors will be no more. The more established authors’ backlists which they might have published, and the quirky side projects, novelettes and novellas which the big publishers decline won’t be available. Which will be a blow to authors who are increasingly turning to such projects to bolster their dwindling income from advances and royalties.

Will that really matter to readers? Well, it will if your favourite writer can no longer afford to write. There are other issues as well. Amazon – and the others – aren’t necessarily always best placed to trade e-books across Europe. They have their own issues with territoriality and availability. Some stories I’ve heard about trying to buy UK published ebooks in Ireland are mind-boggling, if publishing and licensing contracts – and the DRM software that derives from them – consider Ireland to be part of Europe, which of course it is. Depending on which English language rights the publisher holds, it may simply not be available. Life can be particularly fun in Belfast, with a credit card from a UK bank that allows you to buy the book you want, if the inner workings of your e-reader have missed out on the last century of British Isles’ history and think that the entire island of Ireland is one country and so that counts as a cross-border sale into the EU where you’re not licensed to read it. So you can’t. Yes, I was astonished the first time I heard one of these tales of woe.

And let’s not forget that from time to time, whole swathes of ebook listings get deleted or delayed on Amazon – and the others – whether through accident, misunderstanding, over-reaction to some alleged moral panic, or when Amazon wants to force through some new terms and conditions. Behemoth Books has a whole range of other sales outlets, so that takes some of the sting out of the hit. They’re also big enough to generate sufficient bad publicity that whoever’s at fault gets the hint to sort things out pretty sharpish. Back Bedroom Books of Chipping Norton is in a world of trouble and the smaller the publishing operation, the less clout they have, however loudly they’re clamouring for action.

At the moment, if such an oddity crops up, that reader can head to the publisher’s own website and with any luck, they can get a DRM free edition that they can enjoy without these hassles.

Not after 31st December 2014, they won’t be able to.

*For those of you just joining this story – as of 1st January 2015, VAT (essentially a sales tax) on electronic products will be levied at the rate applicable at the customer’s location, rather than the suppliers’ base of operations. So Amazon will have to pay 20% for sales into the UK rather than Luxembourg’s 3%. You can find a whole lot more about this via previous posts and links on this blog. And let’s not forget it’s not just Amazon who’ve been taking (perfectly legal) advantage of the current loophole by funnelling all their business through Luxembourg.

So now calculating a price across EU borders means knowing the applicable rate of tax at the customer’s location. That’s 28 separate jurisdictions. Are you supposed to set a price that’s going to fluctuate at the check-out when someone tells you where they live? That’ll be so unpopular that people obviously won’t. So you have to pitch the price where you guess the plusses and minuses will even out and you won’t take too much of a hit. How are you supposed to know where people live? There’s a list of approved indicators, and you’re supposed to collect three pieces of data, of which two must match. Er, okay. Oh and you’ve got to store that highly sensitive personal data securely for ten years. Okay?

So this is a real headache, and the smaller the scale of your operations, the bigger headache it becomes because the turnover threshold for this is £0.00. Or €0.00. Or $0.00 in whatever sort of dollars you use.

Amazon – and Google Play, and iBooks – have known this is coming for several years now, and have their new systems in place, as anyone publishing via KDP now knows from this week’s email. Publishers who sell ebooks direct from their own websites – and who belong to the trade bodies which have been HMRC’s main route for spreading the word about this – have known it was coming and have paid their software developers to write them compliant new systems accordingly. Okay then, they’re covered.

For anyone else, there’s VATMOSS, the HMRC’s new VAT Mini One Stop Shop, which will do all the sums for you. That is fine if you’re already VAT registered, which means having a turnover of over £81,000 by the way. You’ll have an accountant who’s used to doing VAT returns and you can probably afford to pay him or her to do that bit of extra work.

But the smallest of small publishers? Who don’t dream of reaching VAT registration levels in their wildest imaginings? Who don’t belong to any trade body that could have warned them this horror was on its way? They’re in a world of trouble, because the free/cheap web payment mechanisms they rely on, like PayPal, simply don’t provide the location information they need. Even if they could get it, is anyone going to be happy with their highly sensitive personal data sitting on the hard drive of someone’s laptop on a kitchen table? They can’t opt out of EU sales either; plug-in web payment mechanisms don’t enable that and anyway that falls foul of discrimination legislation.

These small publishers are having to close their direct ebook webstores as of 31st December 2014. Unless they want to risk the chance of lose-your-house-money fines. Yes, really.

How VATMOSS fundamentally misunderstands the nature of direct e-sales

I’ve spent the weekend getting a few things about the new EU regulations on e-commerce clarified in my own mind, reading a range of online resources and also various bits of EU regulation and legislation.

Digital products as ebooks, training and self-help manuals or guides, craft patterns, digital art, photograph or music files are now defined as ‘services’ on an equal footing with cloud data storage, online marketplaces, web hosting and online games. Not the process of selling ebooks and music etc. The actual digital file itself is now a ‘service’ even though in most cases that sale will be a simple one-off transaction.

So there’s a fundamental and massive misunderstanding, or ignorance of, how small-scale direct e-commerce works. All the legislation refers to electronic service providers and specifically defines ebook sales as ‘like Amazon Kindle.’ Now, I would certainly agree that signing up for Kindle (or Nook or Google Play), qualifies as buying an electronic service. It means downloading their app software to your device, and buying books as well as paying for the ongoing benefits of cloud storage, the ability to re-download titles, to read those books on other equipment, so on and so forth.

This is wholly different to buying an ebook direct from a writer or a small press. That is a one-off transaction to purchase a digital file – nearly always DRM free these days – with no ongoing relationship expected or implied.

And obviously, the same is true for such small-scale purchases of knitting patterns, music, artwork, photos, how-to-guides, the list goes on and on…

I’ve also been talking to pals with successful campaigning experience and they all say working with an umbrella group is the most effective way to get press notice and to apply legislative pressure. So I though I would see about getting one underway.

I’m aiming to get together as many microbusinesses as I can – the part time, retired, carers, evening and weekend traders for whom small-scale e-commerce has offered a financial lifeline as well as the local businesses for whom selling e-products has offered a new income stream and promotional opportunities alongside their other activities.

Please check out the Digital Microbusiness Action Group if all this affects you. No fees, no obligations, no pack drill – I’m simply looking to get a viable number of folk together so we can speak with a single voice.

I can now refer to ‘we’ after getting ten sign-ups overnight – phew.

Oh, and why am I doing this? Well, I had a fair bit of time between now and Christmas allocated in my diary for preparing the next series of my backlist novels as ebooks. Since VATMOSS looks likely to shut the small e-press who’ve published my ebooks, I figure I may as well spend my time attempting to do something positive.

And now this blog will (hopefully) return to more normal content!

VATMOSS articles links round up

As people continue to seek clarification, it becomes more and more apparent that microbusinesses are going to be wrecked by this.

Cheryl Morgan of Wizard’s Tower Press (who have been publishing my backlist and new shorter fiction as ebooks.

In her follow-up post The VATMOSS Mess Enters Looking Glass Land she follows up with this revelation

Generally, non-resident businesses that must register for VAT in another EU state face a nil registration threshold. A major exception to this rule is e-commerce to consumers, where foreign EU retailers have special EU distance selling VAT thresholds.

I’ll repeat that. Special EU distance selling VAT thresholds, which apply solely to digital transactions. Here they are. And guess what? None of them are anywhere close to zero. All of them would easily allow a micro-business such as Wizard’s Tower to keep trading.

So we really need to press HMRC for solid reasons why they are making such destructive changes to UK VAT legislation when it doesn’t seem as if other EU countries are doing so.

Meantime, the impossibility of compliance is already seeing microbusinesses shutting up shop.

The Writers’ Greenhouse is shutting up shop. Crucial information here on how impossible complying with the associated regulations on storing customer data would be.

change servers and all my data storage: to comply with the data protection rules, everything would have to be on EU servers. My server, which hosts 8 websites and some 20 URLs, and I don’t even know how many associated emails, is based in Canada. Dropbox, which backs up all my stuff, is based in the United States. I don’t even know where my Gmail server is.

Clare Josa explains how using Paypal won’t enable online sellers to obtain the required customer information.

Incidentally, I’ve seen people scoffing at questions about where an ebook is taxed if a UK customer on holiday in France downloads it. Holidays are one thing but what about the extended periods that EU citizens now spend in other member countries? My husband works for the UK subsidiary of a Dutch firm which also has a Romanian subsidiary & it’s not unusual for Dutch employees to spend 6 months in UK, or English employees to spend 6 months in Romania. What’s the position there? How is the seller supposed to collect the two non-contradictory pieces of information to identify the buyer’s location when the credit card comes from a Dutch bank and the IP address and telephone number of the landline delivering the product is in the UK or Romania?

Savvy Mums Business Website article, raising the issue of people being pushed back onto welfare benefits. Bear in mind that 80% of the recently self-employed are women.

Rachel Andrew explains the horrible implications of the EU VAT “Place of Supply” change

You can only register for the MOSS if you are UK VAT Registered.

This means that Ann – our freelancer designer who also sells an ebook – is either going to have to register for VAT in every country she sells to, charge VAT to their residents and pay VAT due OR register in the UK and also register for MOSS.

And if Ann becomes VAT registered, all her prices go up by 20%. That’ll hardly help her business stay competitive, compared to similar traders who abandon digital products and can wait for the £80k threshold before they have to register.

The Government’s own service assessment of the VATMOSS portal “After completing our assessment we have concluded the VAT Mini One Stop Shop service should not be given approval to be a live service on the HMRC portal.” As of 3rd October 2014

HMRC’s own version of the Twitter Q&A.

Oh, they’ve also published an email address for queries. Since I have some very urgent ones over decisions I need to make soon about commissioning artwork and other ebook-related services, I wrote and explained my concerns. That email has bounced, telling me that’s an invalid recipient. Do we think that email address has gone down under a deluge of messages or it was never working in the first place due to some institutional incompetence?

VAT rules to catch Amazon will incidentally crush small businesses

*If you’re checking back for updates and further links, I’m adding them to the end of this post so please scroll down*

Ah, the law of unintended consequences. You really would have thought legislators would know about that one. Apparently not. New VAT legislation to stop the likes of Amazon sneaking round their tax liabilities has a massive flaw. The turnover threshold is set at £0 which means small online retailers of ebooks and other digital products will have to compile VAT returns including details of the countries where each and every customer is based.

There’s more information at Cheryl Morgan’s website since unsurprisingly, this will make life for Wizard’s Tower Press untenable. Which will make earning any sort of income significantly harder for me and all of her other authors.

Just to give you some idea of how bad this is, Cheryl says –

The implications for any small company selling digital products are so horrendous that the Head of Tax at the Institute of Chartered Accountants (England & Wales) has apparently suggested that small businesses stop selling in Europe to avoid all of this mess. Except, how can you? The digital world is global by nature. The better-written platforms, such as Amazon, will at least allow you to block sales via their EU-based sites. However, there’s nothing to stop someone in, say, Finland, buying one of my books via Amazon US, or Amazon UK. If they did, I may be legally obliged to account for that, and Amazon’s systems don’t give me enough information to do that.

There is an online petition asking Vince Cable to maintain the existing VAT threshold, which will mean big companies who can afford the staff and systems to do the admin will pay a fair rate of tax while small business will still be able to trade and to grow without this dire limitation on how they can trade online.

There’s also a Twitter campaign today 25th November using the hashtags #VATMESS and #VATMOSS. If this concerns you, please help get this issue trending, to alert the government to the scale of the problem they’re about to create.

26th November – Edited to add links to some good articles I came across during yesterday’s Twitter campaign

How VATMOSS is the end of small enterprise in Britain – and how we can change it from Heather Burns, web design & ecommerce law expert.

A retired tax inspector’s verdict “badly thought out, badly explained, and badly handled”. from Wendy Bradley.

What is this VATMOSS mess? from the Satago Blog.

New EU VAT regulations could threaten micro-businesses from The Guardian.

Other things that came up as a result of Twitter exchanges –

No one, not even HMRC, has any idea how this will apply to crowdfunding such as Kickstarter.

Apparently HMRC talked to a ‘small business consultative group’ about all this to satisfy consultation requirements. No one seems to have any details about who was part of that group though.

This notion of sufficient consultation completely misses the point that most small and especially online businesses won’t actually belong to any professional or other organisations who might be expected to represent the reality of their trading models.

And as Cheryl Morgan has pointed out, the HMRC definition of ‘small business’ means an enterprise capable of providing a living for one or more people. This excludes vast numbers of ‘micro-businesses’ which are run from home, predominately online, as sidelines or to fund hobbies. For instance, a lot of people selling their knitting and embroidery patterns reckon they will be shut down by this.

Apparently HMRC reckoned 34,000 businesses would be affected. Estimates in the newspapers and elsewhere are around 350,000.

Those with experience of HMRC data handling and administration cannot believe they will be able to handle the new workload. Even at the lower estimate.

27th November

Knitwear designer Ysolda Teague attended a seminar about this yesterday, with a representative from HMRC present to answer questions. She reports back in her blogpost here, and also has further useful information. (If you’re a knitter, check out her patterns while you’re at her website!)

There is a Twitter Clinic scheduled by HMRC between 3:30 and 5pm today 27th November. (So slap in the middle of the school run for mums working from home and useless for anyone with a full time job who runs a digital side-business in the evenings and at weekends.) Direct your questions to @HMRCcustomers.

28th November

I’ve summarized the gleanings from that Twitter clinic in the post following this one.

Do also read the ‘Modest Proposal’ blogpost by a retired tax inspector, Wendy Bradley linked in the pingback in comments below.