The EU regulations about paying VAT for the sale of “digital services” are changing with effect from 1st January 2015. There is masses of information and comments on this subject all over the Internet, so I’m not going to describe every aspect of it here (just boring for most people anyway!). I think however, that it will directly impact on the Deeproot business – which is relevant to all our existing and potential customers.
The critical point about the new EU VAT rules is that from January VAT for all digital service products will be due according to the “place of supply” rather than the country of the supplier. This includes software downloads and licence sales such as those on our website.
From an income point of view, our business is incredibly small and at no time has our turnover come anywhere close to the UK’s VAT threshold. Therefore we have never needed to register for VAT and there isn’t a tax component in our selling prices. But under the new rules there is no allowance threshold and they say that even if we only make one sale to a customer in an EU country, other than the UK, then we must apply, declare and pay the relevant VAT.
This leaves us in a ridiculously impossible situation! We do not have the resources to administer VAT and the associated record keeping requirements. But if we do not comply then we are liable to investigation and penalties, which we also do not have the resources to handle!
Just one aspect of this is that when we make a sale, we have no idea where that new customer is located. Our online sale system is very simple – everything is done through PayPal and we only receive the customer’s email address, which is used to return the software licence. We do not collect location or any other personal data. The new VAT rules would require not only the customer’s country, but much more than that. In fact, I believe it is morally very wrong to insist that we must collect and store such personal data as evidence of the transaction – it is an unnecessary invasion of privacy.
It is therefore most probable that we will be forced to stop our online sales of Plant Base from 1st January (and a Happy New Year to all you government decision makers!!).
We are now investigating the full implications of this and any possible solutions, but so far it is not looking good.
The most likely option is that we go back to processing sales entirely manually. Perhaps also supplying the software as physical media rather than download files. We believe that would remove us from the “digital services” definition, for which one of the criteria is automation. Unfortunately this is an unsatisfactory solution for several reasons. It would considerable degrade our service, as our business is only run part-time and sometimes there are long periods when we are unavailable. It will also use up a lot more of our time doing administration, when it would be better spent developing out products.
Whatever the outcome, this will inevitably have a bad impact on our earnings and make it difficult or maybe impossible to continue production of our product. There are many thousands of “micro-businesses” such as ours who are similarly affected by these poorly thought-out and draconian EU VAT rules. I believe they were introduced to prevent the tax avoidance methods of the very large IT corporations, which is understandable. But they will have the biggest impact on the very smallest operators who do not have armies of accountants, technicians and legal people at their disposal. Yet, it is the small businesses and start-up entrepreneurs that the government says it wants to encourage!
Interested in more background on this? – here’s a good article by Heather Burns : Blog @ Idea15 Web Design