Changes to EU VAT rules from January 2015

[RWAP]

Well no - this discussion on these forums will not reach any of the decision makers in Brussells - that is why in my original post I called on people to contact their own MEP about it - I have already done this and explained why it is difficult to comply with these requirements and an unnecessary burden on small businesses

As I said in the original post, the EU seems to think that there are no small businesses who deal online other than through a third party platform, and those that do are all based in the UK, so it is not a Europe-wide issue.

Looking forward to a time when this comes in for physical goods, what is the best way of implementing this ?

On SellMyRetro - as users have to register, we can compare their registration IP address and declared country in their address, and so hopefully then use our own table of Europe wide VAT rates to work out how much they should be paying for each item. However, sellers would need to say if:

a) the prices they list are inclusive of any VAT payable
b) if not, then are the prices they charge in their home country subject to VAT ?
c) Is the item they are listing (i) hardware, (ii) a book, (iii) an ebook, (iv) software (as these all attract different VAT rates dependent on which country they are being sold to).

We would then need to add VAT as applicable and the seller would have to ensure that they account for this VAT personally to their own country.

It does of course mean that someone in the UK buying from me would see a price of say £50 for a ZXpand (as I would not need to charge VAT to them), but someone in Sweden would see a price of £67 for the ZXpand (as Sweden uses a VAT rate of 25%)

The alternative rather than every seller handling the VAT, would be to turn sellmyretro into a trading platform whereby all payments are made directly to sellmyretro who then sort out the VAT and pay the seller - although that ends up driving up prices further as the final value fee would need to be much higher to cover the extra administration and paypal fees being incurred. It may also push me over the VAT registration limit in the UK, meaning that even UK buyers would have to pay VAT on my items.

The other option would be for sellers to just assume that everything will be subject to VAT at the highest possible rate (which I think is 28%), add this to their sale prices and declare their prices as inclusive of any VAT payable (so everyone would end up paying £70 for a ZXpand wherever they are located).


For sales on rwapsoftware.co.uk this last option would be the ONLY way forward unfortunately, as there is no way of me knowing where a buyer is located in the world until I get an email from PayPal with their payment and shipping information. Even then, I am still uncertain what I would need to do with some of my Russian customers, who provide a UK SafeStore address for delivery (knowing that these parcels are aggregated and then shipped out to the customer). PayPal does not tell me where the customer is located other than the UK address, so arguably I would need to charge them as if they were a UK buyer....

[PokeMon]

As I said in the original post, the EU seems to think that there are no small businesses who deal online other than through a third party platform, and those that do are all based in the UK, so it is not a Europe-wide issue.

Well - sometimes people think the ministers in Brussel have reduced intelligence but this is a missinterpretation. In fact they know exactly what's going on in several countries but sometimes ignore the facts a little bit depending on the work of the lobbyists. I think nobody from this world really believes that small business need no internet (store). The smaller the business is, the more important is the internet for that business, especially for small retailers. There are many specialized stores from smaller companies and not all logistic traffic in the world is from Amazon, eBay or Google only. Third pary platforms are not always the best choice for selling goods. They have many customers but you have also many competitors as well. In combination with high fees it is normally unattractive to sell all products there rather than a specialized sortiment.

I am pretty sure the commissars in Brussel know the markets in very detail and this is not a decision from Germany and France only but from all 28 members finally. This is not really a UK based problems and we have to keep in mind that UK maybe isn't EU member anymore in 2018 or 2019.

So we will see.

[RWAP]

Certainly the feedback is that only businesses in the UK are complaining about the lack of a threshold for e-services.

The report used in 2008 to back up the introduction of this VAT change basically said "There will be no impact on SMEs (small and medium enterprises) as they either do not provide e-services, or sell through one of the major platforms"

Read that except about the Single Digital Market where they say only 7% of SMEs export to other countries - I guess if you include all of the corner shops and garage mechanics, that is probably true, but if you focus on SMEs who would actually be able to sell to other countries, the figure would be much much higher!

[PokeMon]

The report used in 2008 to back up the introduction of this VAT change basically said "There will be no impact on SMEs (small and medium enterprises) as they either do not provide e-services, or sell through one of the major platforms"

I think "or sell through one of the major platforms" belongs in this context to e-services only. And this could have been probably right in 2008 with minor exceptions. This point of view could be very different when talking about material goods and today we have 2015 and not 2008 which could change this point of view as well. So, why not trust in the future ?

[RWAP]

I have no trust in the EU making sensible decisions over this - let's face it, yes, the report they considered was passed in 2008, but they did not think to request another impact assessment in the 7 years before the EU legislation became law in 2015 ?

All of the talk by the EU over the impact the e-services regulations have had on SMEs is along the lines of "We were shocked that these types of business exist" - "It is a UK only problem because of the high VAT threshold in the UK" - "The problems can be resolved by spending around £500 on some new software" (no-one knows what that software solution is or where to obtain it for that price)..

This has at least forced them to include talk of a threshold in the Single Digital Market - but there are problems getting countries to agree to this:

a) Spain and Greece seem dead-set against having any threshold whatsoever for anything because they don't have a VAT registration threshold - although it is hard to believe that tiny one man businesses selling the odd bit of software (for example) register for an pay for VAT
b) Some countries just do not believe anyone in their country is affected !!
c) Some of the countries, such as Italy, have very strict rules about VAT - for example, I hear that one trader got fined for not providing a receipt when they gave a sandwich away to a war veteran in need (!) and Italy also try to assess the value of even public domain items and tax the author on their perceived value.......

It is all about raising awareness - unfortunately, it seems that no-one on these forums can be bothered to kick up any sort of fuss with their MEP and is willing to sit back and wait until the EU make their new laws next year. Pokemon, Paul and SirMorris (for example) do you really want to be involved in having to charge VAT on everything you sell, work out where the buyer is located and therefore the VAT rate to charge and then register for VAT and pay it over to your government every quarter?

The reality is that if it comes to that, I will seriously have to consider shutting up shop as with an average of 10 transactions a day, spread between 30+ countries, I am not sure I could find the time to cope with all of the paperwork.

I am still open to suggestions as to how pricing on sellmyretro.com should be adapted to cope with this once it affects physical goods.....

[1024MAK]

Not that this helps, but do you think one "work around" would be to have the customer select which country he or she is in, then the site will apply the correct VAT (from a database) and display the item cost, the VAT amount and the total cost in the appropriate currency.

Yes, some customers may try to misuse this if they think they can get a item cheaper...

Mark

[RWAP]

That is not quite a work around, as you need TWO pieces of non-conflicting evidence - so if the user selects the UK (to try and get an item from me VAT free for example, because I am under the threshold), but their IP address shows USA, or their PayPal address once they pay shows Italy, I have charged the incorrect amount of VAT and must cancel the order or ask them for another piece of evidence to prove their location.......

If there was a reliable way of getting a user's location from their IP address, this would be easy, but there has already been press coverage saying how people are starting to use VPNs and Proxy servers to get cheaper rates for ebooks etc - I have to admit, even I've been tempted when you see some software for sale at either $49.99 (US) or £49.99 to UK buyers - it can be a big incentive to cheat the system!

The example of the ZXpand is a case in point - I can't even advertise it on here legally as available for sale at £50 (or even £50+VAT as you have to show the VAT inclusive price to consumers), if someone in France, for example, then goes to sellmyretro.com and sees the price is £70 or so (allowing for 25% VAT and the 3.5% PayPal fee on the VAT).

Of course, I could reclaim part of the VAT paid on parts (but only the element which relates to EU sales) to help bring the price for non-UK customers down, but I would have to change how I order these bits as some are paid by me, and some by SirMorris, and again it is a lot of administration to sort out as whereas if I were VAT registered for everything, I would just deduct the amount of VAT I paid on everything from the VAT I collect, I would now need to start splitting out the VAT I pay on every single item I sell so that I could work out how much of that VAT related to sales to the EU !!

I guess the other option would just be to bite the bullet and register for VAT but that would mean everyone within the EU would see a price rise (just some would see more than others).... It would actually be less of an administrative headache for working out input VAT (VAT I paid) than not being VAT registered!

[RWAP]

By the way - getting the right VAT rate is not easy - I would need to create my own VAT database and hope it is kept up to date - the EU only publish a PDF setting out the different VAT rates for every country - there is no online lookup, so you have to just hope if one of the EU states changes its VAT rate, you notice it!

There is also the issue of ensuring that you use the correct category for each item sold - for example, some countries have reduced VAT rates for books, education (not sure if that covers second hand educational software). ebooks (which I am informed covers e-services, such as the fees on sellmyretro).

Second hand goods are even more difficult as (certainly in the UK) you apply a margin scheme - which is VAT is charged on the difference between what was paid for an item and what you sell it for..... No idea how you would work this out where I buy a collection of (say) 3 QLs, a monitor, 200 cassette games, and a ZX81 for a bundle of £200 and then sell each individually - what did I pay for each item?

[PokeMon]

... do you really want to be involved in having to charge VAT on everything you sell, work out where the buyer is located and therefore the VAT rate to charge and then register for VAT and pay it over to your government every quarter?

Well - I can speak for myself only but in fact if you sell regularly items over a timespan which are not typical "private" you are acting as a business and have to declare all to your local tax administration. I do that since 2 years or so as I have to do so and to avoid problems. At least you have to declare and pay VAT - regardless if you earn money on it or not. There have been some official court decisions by OLG Frankfurt and OLG Hamburg if a buyer acts as private person or business for several sellers on eBay. So in fact there is no strict rule how much items you could sell in a month and its value and you can surely act a private person when selling some items. But if you do it too many or regularly with maybe only new items (serial production) you may be handled as a business. If you declare your activities as private or business is your decision and your risk. In doubt the tax administration may have a different point of view.

http://www.shopbetreiber-blog.de/2008/1 ... schritten/
(sorry - only german, you may need a translator)

The other point is, acting as a business and paying VAT to the tax administration doesn't make products more expencive as on the other hand you can subtract the VAT payed to other companies where you buy parts, boards and so on - so it may reduce your profit on it.

Yes - it makes maybe additional work to fill out several formulars but I won't expect here a change prior 2018/2019 - so I don't worry about it now. This is a point where software providers may earn money and if you have to pay for an update you may calculate if you want to do so or if you want to close the business. That's everyones personal decision why there can be many other and potential higher risks to close a business. You could be attacked with several competitors lawyers, gouvernment regulations and many things more. Doing a business is always risky in many ways and people don't want to take risks usually never opens a business in their life. You could also say, business is in fact steady risk management as well.

Do you really think that it will stop the EU if some sellers are not want to pay for software updates or tax at all ? Do you think this is a good argument ? Do you think it would impress the authorities when you announce to close your business when there are changes in the rules you don't like ?

Well we speculate here about a development of business rules which come in 3 years and nobody knows how its business is exactly affected. You may decide to close the business now immediately or later when there comes a regulation you don't like. The point is - you are not alone and every other small company has to invest in software and administration as well. You could calculate an administration fee in your prices if needed or not. It's your decision but the world will still turn around whatever you decide in 2018, 2030, 2040.

[RWAP]

Karl,

I don't know what the VAT position is in Germany - but I have been trading as a business and reporting my profits etc for tax since 1987. I just do not currently need to report VAT on anything, as my total sales per year is below the UK VAT registration threshold (£82,000).

In my particular case, many of the things I sell would need to be sold at a much higher price if I needed to charge VAT on them - several products I sell are made by small sole trader businesses who buy in the parts and sell the finished article to me - they do not charge me VAT as they themselves are below the VAT threshold, so I could not recover the VAT which they have paid on parts, boards etc.....

Besides as it is a business to business transaction, then even under the new rules, their VAT position would remain unchanged - ie they would only have to charge VAT according to the rules of their own country (so would benefit from their country's own registration threshold).

Second hand items are much much harder to deal with, as obviously these are generally purchased from private individuals who are selling off their (or a deceased's relative's collection). Under the UK rules, I would have to keep a closer eye on stock and value and then work out how much markup I was adding to each sale in order to work out the figure to charge VAT on - traditionally, I have just adopted a very simple stock mechanism, whereby second hand stock is deducted as an expense when I buy it and carried forward at nil value, because the chances are that I will never sell it.

However, this would not work for VAT unless I charged VAT on the full sale price.

I don't know if these rules could even be used in the same way for sales to every other EU country or if each country would apply their own method.

If you don't want to raise the issues with your MEP and are happy to wait and then deal with what comes out of Brussels next year, so be it. But as businesses we all need to be mindful of what is being considered and hopefully have our own input into the process. As consumers even more so.

The chances are that I will continue to run my business, but if the administration is too burdensome and I need to start employing accountants to sort out the VAT mess, then I will have to consider my position again - especially as the EU are also planning on bringing in legislation to stop geo-blocking (ie blocking sales to other countries in the EU in order to avoid having to deal with these VAT rules).

I am still open to suggestions on the following:

a) The best method of obtaining two pieces of non-conflicting information about a buyer's location for EACH AND EVERY SALE bearing in mind that people do order things when they are on holiday, or use proxy servers etc to get around their own country's internet restrictions.

b) How to best determine if a buyer (or seller on sellmyretro) is a business and therefore is charged VAT according to the UK rules. At the moment, I do this on an individual basis if the seller on sellmyretro is in a non-UK member of the EU.

I doubt very few of the existing sellers are VAT registered and then Paul claims he is selling as a private individual and not a business even though he is manufacturing items directly for sale.

c) How you would advertise the price for an item where the exact price will vary dependent on the VAT rate for the customer's location (and the EU rules stipulate that consumers HAVE to see the VAT inclusive price). Maybe you could just post on the forum that 'Dragon's Lair is now available' with a link to the software on sellmyretro.com and hope that the visiting person (who may not be logged in) is using an IP address which is registered to their current location!

d) How to come up with a fair pricing structure for something like the ZXpand, where prices would vary from £50 for UK, USA and Russian customers (for example) and around £62 for a Hungarian customer with of course, VAT being added on the charge made for postage too, and an allowance added to cover the paypal fee on the VAT element, this would take a ZXpand to around £75 delivered to Hungary - even after deducting the small amount of VAT which is included in the price of making the interfaces... Membranes are not so much of an issue, as I purchase those directly from the factory and 27% of £10+postage (less the VAT on the factory price) is not a great deal of difference compared to the price a UK buyer would pay of just £10+postage.

Of course, if the UK leaves the EU, things would be a lot simpler, as I could simply ignore the EU rules and then wait to see if they find out I am a small trader and try to enforce the rules. A lot of the American small traders (and even some large US corporations) seem to be adopting this approach especially as it would seem that it is up to each individual government to find out what items are being purchased from overseas, track down the traders and then bring a court action for the VAT they should have collected....



By the way, the EU is planning on bringing the regulations in with effect from 2016 - the changes to the digital regulations have not had to be passed by individual countries, so far as I can tell - the first change notification was issued by the HMRC on 19th December 2014 about the changes to take place as from 1st January 2015.