The shop section of my site will be closing for business on 31 December 2014 and I'll be withdrawing all digital downloads from sale.
It's not something I actually wanted to have to do, but as the changes to the EU VAT rules come into effect on the 1 January 2015 (HMRC at least are calling it VAT MOSS), the additional overhead involved in compliance means that running the shop will likely no longer be financially feasible.
The closure will include everything in my (somewhat small) shop, so
- Joomla Extensions
- Credlocker Extensions
The EU has introduced changes to the place of supply for telecommunications, broadcasting and electronic services, which come into force on the 1st of January.
That final category (electronic services) is so broad as to encompass digital downloads (and is the bit which affects my shop). Currently the rules on VAT are quite simple
- If you're in the same country as me, you pay UK VAT (20%)
- If you're not, you pay no VAT
The changes mean that the place of supply will now be where the consumer is based, and I'd have to levy VAT based on the VAT rate in your country.
The changes were brought about in response to complaints about companies like Amazon operating from countries with low VAT rates, as it was seen as preventing competition from companies in the purchaser's country (who'd have to charge their national rate of VAT).
Why it's not feasible to Continue
To comply with the new rules, there are a few things I'd need to do
- Find out (and keep up to date) the VAT rate in every EU country
- Identify whether you're a consumer or a Business
- Adjust the software which runs the shop to identify your country and levy the appropriate VAT rate
- Ensure my invoices comply with the requirements relevant to that country's laws
- Complete an additional quarterly return (even if it's a NIL return)
Whilst revenue from the shop isn't particularly bad, it's also not sufficient to offset the increased administration and initial-set up costs, the time for which, would inevitably be taken away from more profitable activities.
If You've Already Purchased Something
The only change is that items currently in the shop will no longer be available for purchase. If you've already purchased something and encounter issues, then contact me and I'll do my best to resolve them.
For the software in particular, this change doesn't necessarily mean that development will stop. The vast majority of my Joomla extensions, for example, were created because I had a need for them - that hasn't changed and so bugfixes and new features will likely still be developed.
Isn't there a way around it?
I've only briefly scanned over some of the information so far - although HMRC claim to have made the knowledge widely available, the first I'd heard of it was when GDS criticised the MOSS website.
After a brief read, there doesn't seem to be any way to keep the shop open in it's current form without incurring the administration and set up costs of ensuring I comply with the requirements.
Even if I were to implement something so that only UK and Non-EU users could purchase from the shop, it looks as though I'd still need to submit a Nil return every quarter as I'd technically be capable of selling to an EU user. Although the administration overhead of that is less, I'm not sure I agree with specifically excluding EU based users.
The only other way around it (which I may well read further into and pursue) is to adjust the process such that the shop no longer falls into the category of a 'Digital Service'.
In order to qualify, the system should require no, or minimal human interaction (by the owner/operator), so it may be possible to adjust the process so that I'm manually processing orders.
Quite aside from it being a massive backwards step in commerce, it'd also mean the purchaser had to wait while I processed the order, and I don't know whether I'd be happy with that. It'd also mean that my Joomla extensions couldn't be installed from Joomla's 'Install from Web' panel.
Amongst those who are aware of the changes (the number of whom is obviously going to increase) there's a lot of consternation from small business owners. Many have already said that they're going to have to close their businesses as a result.
Although the changes may stop the 'anti-competitive' behaviour which was originally complained of, the end result may well be the closure of many small businesses, leading to less tax revenue by the national Governments (not that they'll necessarily notice the difference).
Longer term, I suspect the complaints about the complexities of compliance will lead to the EU mooting the idea of a harmonised VAT rate across the Union, which would lead to some paying more VAT and some paying less.
Those businesses who do keep their doors open, will probably increase their prices slightly to cover the additional administration overhead.
Finally, of course, there's the desired effect of the changes - shopping from various online sites is going to get more expensive for all of us as they'll now need to charge us VAT at our countries rate instead of the VAT rate of whatever tax haven they're 'incorporated' in.