VAT On Downloads, Help and Guidelines

Posted by Michael Watmough | Posted in Archive | Posted on 03-01-2015

You may or may not have heard about the new VAT regulations about VAT payable on downloadable content sold outside of the UK but within the EU.

If you sell your music online and have concerns that this may apply to you and how on earth you go about even beginning to account for it, then hopefully the information below should be of some assistance.

In a nutshell, the rules from the 1st January 2015 now state as follows:

‘From this date, the place of taxation of these digital services will be determined by the location of the customer who receives the service, rather than the location of the supplier of the services’.

Every EU member state charges VAT at a different rate.  Previously this meant that if you were based in the UK, you would pay VAT at 20% on each sale, no matter where your product was ending up within the EU.  Instead, VAT will now be paid based on the rate of the country of the purchaser.

It seems that this ruling has been put in place largely to stop big corporations who trade worldwide – the Amazons and Apples of this world, from routing their sales through low VAT rated countries in order to maximize profits as much as possible.

The ruling does specifically apply to businesses only.  As such, if you have music for sale on Amazon or iTunes for example, then the VAT implications will be dealt with by them at the point of sale and therefore this has no impact on you and you can go about your merry way.

Similarly Bandcamp have released a blog saying that they will also be handling it all for you, which is extremely kind of them.

If you are signed to a record label then we would expect them also to be handling this on your behalf, but it would be worth speaking to them directly to see what measures they are putting in place.  HMRC has created VAT MOSS, a mini one stop shop where you can account for all your business to consumer EU sales in one quarterly return and payment.  Even if you are not currently registered for VAT in the UK, and do not need to be as your turnover falls below the current threshold of £81,000, you can still use this service without having to pay VAT on your UK sales. Complicated, we know.

As some of you will know, running a small business or operating as a sole trader generally involves hard work, and a lot of it.  Without the introduction of a minimum sales threshold the implications of the level of work involved stemming from these changes, on what could really be a relatively small portion of your sales, is quite daunting, especially if you have no experience with VAT.  So even if these rules do not apply to you, you may wish to sign a petition calling for the suspension of this ruling to micro-businesses and sole traders.  You can sign the EU petition here and the UK petition here.  (It is worth noting that Vince Cable has responded to the UK petition to clarify that you will not be required to pay VAT on your UK sales if you register for MOSS, as we said above).

This blog has been written from information gleaned online.  It is not given as gospel truth, and if you have any concerns or questions we strongly advise you to contact HMRC directly.  You can visit their website for more information, or even call them.  They don’t bite.

– Sarah Hammond

Comments are closed.