EU VAT Issues - Blog

EU VAT Issues

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Some of you may be aware that the EU has introduced new VAT rules from January 1st this year. These rules appear to be an attempt to crack down on big companies like Apple and Amazon who funnel their profits through low tax countries in order to pay as little tax as possible. As usual, though, it is the little guys, like us, who suffer the most. Since the beginning of the year, VAT on digital products (such as ebooks, tutorials and yes, patterns) is calculated based on the rate in the EU country the buyer is based in, not the country the business operates from. Obviously this was worrying news for a two man operation like Capes and Crafts. We fall well below the VAT threshold for the UK, where we are based, and couldn't even begin to imagine having to work out different rates of tax for each individual sale, as well as submit 4 VAT returns each year. Most importantly, we would have to voluntarily register for and pay VAT in the UK, meaning all of our prices would have to go up regardless of whether our customers were actually in the EU. Not nice.

 

While some pattern sellers on Etsy closed up shop, or stopped selling to Europe completely, we decided to keep going, and hoped that the rules would be clarified. We sell so few patterns to other EU countries that it didn't seem worth it. Now though, we have more information from Etsy on the matter. When you shop with us on Etsy, if you are based in the EU, Etsy will calculate the VAT payable based on your location, and add it to the final cost. They will then remit the money to the appropriate tax authorities. This means that C&C can keep going, so hooray! But it also looks like it will mean that even our UK customers will have to start paying 20% VAT at the checkout when they didn't before. I'm not entirely sure about how this will work, so please bear with us while we work out the fine details.

This is what Etsy had to say:

 

'buyers will be paying VAT as part of their total purchase price. We will calculate the VAT based on the location of the buyer and determine the VAT at the time of sale.'

 

On the other hand, according to Folksy (who we also have a shop with but haven't sold through yet) there is an exemption,

 

'We have had confirmation from HMRC that the new rules do not apply to PDF patterns, printables or graphics, as long as they are supplied to the customer by manually attaching a PDF or file to an individually written email.'

 

So our conundrum is this: do we sacrifice the convenience of instant digital download for the possible small delays of manual emails? This is something we will be discussing over the next few weeks, so we can try to come to the right decision for us that is suitable in the long term. The bottom line right now is that buyers who are not in the EU will notice no difference to the cost or service when shopping with C&C, while EU customers may see an additional charge when they are checking out on Etsy. We are obviously not pleased that some of our loyal customers will suddenly find their patterns are more expensive, how ever slightly. If you have any thoughts or opinions on the matter, please do leave a comment, as your input as a customer affected by the changes will be invaluable. Or you can email me at emma@capesandcrafts.co.uk if you prefer. We will keep you all informed if we make any radical changes to the way we run things around here, so keep an eye on the blog or Facebook for updates.

 

Happy stitching!

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