If you can, according to HMRC, distinguish and organise your business between UK sales and sales to EU customers, you can register for VAT in the UK for the cross border part of your business only — and then sign up to VAT MOSS. Confusing? You bet. If you don't already have an accountant, now is the time to get one if this affects you.
Bear in mind all of this only applies if you are selling to consumers. If you market digital products to businesses only, the VAT MOSS regulation doesn't apply. But as Rachel Andrew — web developer and managing director of edgeofmyseat.com — notes on her blog, there's complications with proving just who a business customer is: "The only sure way to identify a business customer is via their VAT number," she says. "Many small businesses and freelancers are not VAT registered and so will generally need to be treated as a consumer for tax purposes." As the gov.uk guide states, 'If you supply digital services and your customer doesn't provide you with a VAT registration number (VRN) then you should treat the supply as B2C.'
If you sell your digital wares through a marketplace or established store (Paddle for instance, or even the App Store or Google Play) you don't need to do anything further as the store will already be complying with the regulation. The sad thing is, micro-businesses are being forced into using larger marketplaces rather than selling direct to their customers — pushing up prices (due to commission) and taking the 'person' out of the sale (which is often so important in the creative industries).
So what can you do about it? Well, you could, of course, stop selling your digital products. You need to weigh up whether your sales are worth the red tape and the effect that registering for VAT will have on the rest of your creative business. Or you could simply move your existing digital products to a recognised marketplace or store who will take responsibility for the new VAT regulation — this is by far the easiest approach. However, you can't do this with membership sites such as those run by Chris Spooner.
And that's why the designer recently wrote a letter to HMRC detailing the complications and financial detriment of this law to micro-businesses such as his. There's also a petition you can sign directed at the Secretary of State for Business, Innovation and Skills, Vince Cable.
Patricia van den Akker, Director of The Design Trust — a resource for designers wanting to start their own business — has some further advice: ""For sole traders who are close to the VAT threshold the best step is to indeed grow their business and become VAT registered," she says. "For sole traders with a lower turnover and small income from digital products it probably is best to stop that part of their business. It is that group that will be hardest hit. I think a big issue with VAT MOSS has also been that the information from HMRC has been very poor so far, and many freelancers and sole traders do not want to register for VAT, but are now confronted with an extra paperwork burden with very limited time to implement it now before the New Year."
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