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Selling Downloads of Your Music In The UK? Read This:

November 17th, 2014 | 35 Comments | Categories: New Music Strategies |

[OK, I was lying about that being the final edit… THIS is the final edit – http://blog.bandcamp.com/2014/12/30/eu-digital-vat-changes-and-bandcamp/ 🙂 ]

[final EDIT: read the follow-up post here, with Bandcamp’s new tax info – http://www.stevelawson.net/2014/12/bandcamp-and-the-new-eu-vat-law/ ]

[another EDIT: Read this by Rachel Andrew: http://rachelandrew.co.uk/archives/2014/11/25/how-small-companies-and-freelancers-can-deal-with-the-vatmoss-eu-vat-changes/  it’s looking more and more like there is no loophole, unless you a) stop selling downloads to people in the EU or b) distribute your ‘downloads’ via physical media. Read on for the historic discussion, my initial understanding, and the comments thread that is helping to make sense of this…]

I’ve been somewhat aware of this for a while now, and couldn’t quite believe that a piece of legislation so utterly insane was actually going through.

The laws around paying VAT (Value Added Tax) and ‘Supplying Digital Services‘ within the EU are changing, as of January 1st 2015, and it may well affect you. Here it is, as I understand it thus far (I asked the Musician’s Union what their position on this is and they say they’re going to be providing info to members in December). If you have more info, please include it in the comments [EDIT: especially if you work in tax law/accounting: For clarity’s sake, I’m NOT a tax expert or lawyer, so my interpretation of the legal situation should be viewed in that light, but I have been dealing with my own tax affairs for 20 years, without the help of an accountant, so am definitely in the ‘experienced amateur’ camp here]

  • WHO DOES THIS AFFECT? Anyone who sells music downloads (or eBooks/videos/any other digital product) off their own website.
  • WHAT DO THE CHANGES MEAN? For a full exploration using software companies as an example, see this brilliant post by Rachel Andrew. [EDIT: and this follow up piece by Rachel about implementation]
    In short, the arrangements around selling digital products to people in the EU are now defined by the country the customer is in rather than you. Meaning you’ll need to be registered for VAT no matter how much you earn, if you sell your music direct from your website. This means you’ll have to charge (and pay) VAT on ALL your work unless you set up a company to sell your digital products that’s distinct from your self employed business as a musician/teacher etc. You’ll also have to file a quarterly VAT return (which is WAY harder than a self assessment form). In short, it’ll ruin your business.
  • IS THERE A LOOPHOLE? YES.

This is the important paragraph on the government’s page describing the new arrangement:

Supplies via internet portals, gateways or marketplaces

If you supply digital services to consumers through an online portal, gateway or marketplace then it’s important to determine whether you’re making the supply to the customer or to the platform operator. Where the platform operator sets the general terms and conditions, authorises payment or delivery, or doesn’t clearly state the name of the supplier on the receipt or invoice issued to the consumer, then they’ll be seen as making the B2C supply even if they’re contractually only an agent.

What this means is that if you sell your music via another service, you’re OK. If you sell it via a ‘hand-rolled’ site (off your own server with your own CMS), you’re screwed. So this means that iTunes, Amazon and crucially Bandcamp sales are all exempt [EDIT: see comments for an exploration of this…] . Those sites are all platforms that “set the general terms and conditions, authorise payment or delivery” .

So, if you sell your music direct from your site, you may want to switch to Bandcamp for your sales, or get your VAT situation in order. The same goes for eBooks (I use Leanpub) and Video (any suggestions, please put them in the comments)

 

You may also want to sign this petition to provide an exemption to this very, very stupid piece of legislation. Cos it’s going to royally mess things up for so many creatives and small businesses.

 

Similar Posts elsewhere in this blog:

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35 Comments so far ↓

  • The Captain (sans Tenille)

    The flat rate VAT scheme works pretty well for this (the label I work for does it) – sure it’s a ballache, and I don’t agree with the policy, but it’s perhaps not quite as bad as it might have been.

    It also means that you can claim back VAT on some single transactions over £2000

    https://www.gov.uk/vat-flat-rate-scheme/overview

    • Steve

      another 12.5% tax on top of everything else?? WTF? That’d certainly make it pointless for most musicians to sell music off their own websites, given that they’d have to pay that 12.5% on everything, or set up a LTD company as their sales wing, and be a company director etc… for someone earning £15K a year, with a few hundred quid coming from online sales, that’s a massive and entirely unmanageable jump. I know SO few people whose ‘business’ is selling music online. for most, it’s a small portion of their income, and is as useful to them as a promo thing as it is as income.

      The bureaucratisation of life in the arts is a wholly depressing development…

      • DanThornton

        Actually if you’re not earning a lot, becoming a Ltd Co makes a fair bit of sense due to the fact you can issue dividends tax free, rather than paying on everything you earn. And it only costs a few hundred max to be set up via an accountant…

        Yes it’s a massive pain, but the geographical problem is the one that’s most difficult to solve, particularly for digital products where a mailing address is never needed.

        • Steve

          thanks Dan – I think there will be quite a few people who will be able to make the best of some of this, in that it’ll help them pull their business affairs into order, but it totally undermines the simplicity of the self assessment system, which was all about removing red tape from small businesses, and making it easier for sole traders to experiment, expand, explore… all without quadrupling their paperwork or financial risk… for a HUGE number of musicians, their revenue from digital sales is tiny, so dragging them into the VAT system for the sake of a couple of hundred quid that would’ve been declared through their normal tax return anyway seems insane, and wholly counter to any claim to be ‘supporting innovation’ from a government that prides itself on being tech-savvy…

          And for sure, the point you highlight about geographical details is going to make using paypal really tough unless they change the kind of info they share as standard…

          thanks!

  • simon gray

    hmm, how annoying.

    It doesn’t affect me at the minute, because I (fail to) sell my music recordings via bandcamp and iTunes et al, and I (with slightly more success) sell my ebooks through Amazon, but I’ve had plans for years to get around to making a website to sell my dots music online on a pay what you think it’s worth to you basis – does Leanpub support that pricing model?

    • Steve

      Yup, Leanpub will work great for that. The only downer with Leanpub is that they wait quite a while before paying you (because they have a 30 day money back guarantee, so that has to go by before they send you the money!)

  • Jane

    Let me add to the fun – the amount of VAT you charge “now defined by the country the customer is in rather than you”. How do you define what country they’re in? If a Brit is travelling to Belgium on Eurostar, and is connected via a French WIFI, which countries rates will apply, and how will you know? Enjoy…

    • Steve

      yup, it’s a shit-show. No idea how this is going to play out. I guess it’ll end up requiring proper invoicing… I wonder if Paypal will have to change the nature of the information they exchange between shopper and vendor…

    • Mackenzie

      If they’re paying with a credit card, they need to give the billing address, no?

      • Steve

        Paypal and similar systems are going to be the sticking point, I think. Perhaps they’ll have to change what info they share as standard.

  • Baxter Tocher

    For selling videos, folk may want to look into using Vimeo On Demand.

  • Cath

    Oh that’s interesting. E-junkie is what we use for Tabs, I’ve no idea what it states on the invoice to the buyer. I suppose I’d better buy one and see.

    I’ve absolutely no idea where the buyers are from, there’s no need for them to say, it’s digital! Best guess from names isn’t going to work..

  • Jim

    Unfortunately it doesn’t look like Bandcamp are exempt from this farrago as you state:

    “It is your responsibility and solely your responsibility to remit the appropriate taxes (income, sales, VAT, property, estate or otherwise) to the appropriate taxing agency.”

    from:

    https://bandcamp.com/help/selling

    • Steve

      that’s really interesting – thanks for flagging it up.

      In terms of the wording of the government doc, Bandcamp definitely fulfill this criteria – “Where the platform operator sets the general terms and conditions, authorises payment or delivery” and the last line seems key – “they’ll be seen as making the B2C supply even if they’re contractually only an agent” implying that they don’t need to be ‘making a B2C supply’ if they are acting as agent…

      As far as I can tell, the purpose behind this is the only evidence that they’ve recognised some kind of loophole as being necessary, and this is their clumsy way of trying to define the kind of low-level economic activity that happens around people selling stuff via third parties whose value is in the aggregate volume of their sales, not the huge sums being made by individuals… so rather than the purpose of it being ‘this is OK so long as the tax is being paid elsewhere’ it’s ‘this is OK if the transaction is such that you’re not in a position to demand that the right kind of details are handed over, and someone else is acting as the gateway setting those terms and conditions’. Which is definitely what Bandcamp do. I can’t demand that Paypal start giving me a shipping address for everything on bandcamp in order to make sure I know the country I’m supplying to, and I can’t limit the country I’m supplying to those outside the jurisdiction of this particular tax law… That’s my understanding at the moment… So yes, I’m responsibile for ‘remitting the appropriate taxes’, which in my case is self employed income tax via the self assessment process, but the way that Bandcamp is set up between me and the customer means they function as a gateway…

      Will continue to ask around amongst tax expert friends!

      • Jim

        I get what you’re saying but the taxes you pay via self-assessment (which I also do!) won’t be directed to the relevant EU member states, it will go just to the UK government. So the appropriate taxes won’t actually be being paid if you sell anything in the (non-UK) EU.

        And according to the documentation, this leaves you open to audits and fines from the relevant member states if it comes to light. I don’t know how likely this is but when it comes to taxation, I prefer to do things by the book – hate to be worrying about anything catching up with me!

        So with the Bandcamp example, that doesn’t really make them any different to me self-hosting my website and then using Paypal as the payment gateway (which I do).

        I provide the music files to my customers through my own website on a hosted server after Paypal has handled the payment transaction. Pretty much exactly the same process as Bandcamp, so why does that make Bandcamp an “online portal, gateway or marketplace” who are exempt from this ruling? Surely classification as such and exemption would only possible if the portal/gateway are actually paying the relevant tax. I don’t know if iTunes pay any relevant taxes to the countries the music is sold to? Or Amazon/Google Play/Spotify etc?

        • Cath

          So, I just did a little experiment with BandCamp.

          I’d generally agree with Jim here, but, if you add in that other sentence that says:

          “or doesn’t clearly state the name of the supplier on the receipt or invoice issued to the consumer, then they’ll be seen as making the B2C supply even if they’re contractually only an agent.”

          Then I’d have to go with Steve regarding the HMRC line.

          I just bought a download of yours from BandCamp Steve and the invoice clearly states that it will appear as PayPal / BandCamp . Yes it says thank you for buying Steve’s album but not that I bought it from Steve.

          The waters are horribly muddy here. What does concern me is that BandCamp and E-Junkie both allow us to charge VAT if we are VAT registered, the assumption here being it’s on us not them to do so..

          • Jim

            The gov.uk wording is extremely muddy. It says:

            “Where the platform operator sets the general terms and conditions, authorises payment or delivery, or doesn’t clearly state the name of the supplier on the receipt or invoice issued to the consumer, then they’ll be seen as making the B2C supply even if they’re contractually only an agent.”

            I looked back at the last purchase I made on Bandcamp and you get 2 emails/receipts; one is from Bandcamp and one is from Paypal. The Bandcamp email says:

            “Thanks again for your support,
            Bandcamp, on behalf of…(artist name)”

            and the Paypal one is headed:

            “Merchant:
            Bandcamp
            support@bandcamp.com

            but it also includes the name of the artist in the Description field.

            So both emails include the words “Bandcamp” and also the artist name, but who does that make the “supplier”?

            I would class the PayPal email as the actual receipt because they processed the actual transaction.

            But still none the wiser who would “legally” be liable for paying the VAT in this example???

            • Cath

              Yes, it’s beyond muddy Jim. Maybe a lawyers input is needed rather than an accountant..

              • Steve

                I think we can only assume (Occam’s Razor etc.) that the government wording ISN’T muddy, and that if they’d wanted a caveat about the gateway/partner/agent having to pay the tax on your behalf for them to be legit, they’d have put that in.

                For me, that they left that out isn’t muddying it, it’s actually broadening the possible scope of services that can be considered an agent/gateway. Taking the wording of the government document as it stands (which is really all we can do, surely) Bandcamp seems to clearly pass the criteria that they stipulate in that paragraph. Especially as the two sets of criteria (T&Cs/invoicing and receipt/invoice) are separated by an OR not an AND. It seems that Bandcamp fully complies with the first, and other than the mention of the artist in the subject line on the email, is listed as the ‘Merchant’ for invoicing purposes for the other.

                Conclusion? We REALLY need a tax expert (Jim, given that you’ve chosen to post anonymously, I can’t tell whether you are one or not. I assume you could be…) I might start contacting friendly MPs/Civil Servants about getting some clarity over this… Thanks so much for the discussion (I’ve edited the intro to the original post above to highlight my non-expert status, just in case my ‘as I understand it’ caveat wasn’t enough 😉 )

  • Jim

    Steve, sorry for posting anon – I’m completely as far from being a tax expert as it’s possible to be 😉 But if the government aren’t expecting the ‘portal’ (e.g. Bandcamp) to pay the tax on your behalf, then there is still a tax due to the relevant country that isn’t getting paid. They certainly won’t be allowing or condoning that, so you would still be responsible for registering for VAT and all the processing and paperwork that goes with that, which makes the point of using Bandcamp (or any other non-VAT paying portal) irrelevant, for VAT purposes anyway.

    You would have to charge country-relevant VAT at the point of purchase (unless you wanted to try chasing up customers for the VAT portion after they already have their 99p music track – good luck with that!)

    My guess at this point (and it is only a guess) is the wording “Where the platform operator sets …then they’ll be seen as making the B2C supply” means that by acting as the supplier, they’ll be responsible for any taxes due.

    It really all needs much more clarification. Actually it all needs scrapping but doesn’t look like that’s on the cards 😉

    I’ve emailed Bandcamp about it and waiting for a response – will let you know what their official line is.

    • Steve

      thanks for your continued exploration of this – it’s really important that we get it right! 🙂

      I’ve messaged an MP friend, waiting to hear what they say… Will do the same with some civil servants…

      if services like Bandcamp aren’t exempt, that’s a HUGE number of micro-enterprises that are properly fucked.

      • Jim

        Hi Steve,

        I’m still waiting to hear back from Bandcamp (maybe they’ve also only just found out).

        However I did contact PayPal with a lengthy explanation questioning what tools/help they might be offering to business sellers. I mentioned that we would be required to collect 2 pieces of information about the buyer’s location and whether Paypal would be willing to make this info available to the seller (for example PayPal must know the buyer’s billing address and they can also detect what country the buyer is in – these 2 pieces of info would be exactly what we need).

        Their simple response (I did ask for what their official line would be as I was going to be posting it publicly) :

        “Please note that we are not under or affected of this Tax Law. Thank you for your time. You have a good weekend!”

        So there we go – comforting to know we’re not affected of it!

  • Steve

    …more wisdom from Rachel Andrew about the implementation of this for small businesses:

    http://rachelandrew.co.uk/archives/2014/11/20/implementing-the-new-eu-vat-rules/

    …what this tells me is that Bandcamp will either be exempt or become illegal, because there is NO WAY at all to collect the info that they are asking for as it stands…

  • Nick Froome

    I suspect the reasoning behind this is the same as for online software purchases.

    Previously the Government was losing VAT income on software sales where the product was bought overseas and downloaded. Now platforms like Kagi add the appropriate VAT to invoices depending on the location of the buyer & seller

    This is mandated by EU law – there is no getting round it

    For downloads, the current UK situation is that sellers charge no VAT unless they opt to register or they are forced to by reaching the VAT threshold. If the change goes ahead as described we will have to charge (and pay) VAT on music downloads and therefore registration will be forced upon us

    One result is that our products will be 20% more expensive for buyers, even local buyers

    I have a feeling the final outcome will be somewhat different to what is predicted

  • Cal

    In the discussion on this topic at the Sound on Sound forum someone who has talked to HMRC reckons that these rules won’t apply if you aren’t VAT-registered, and you don’t have to become VAT-registered as a result of them, as long as you’re under the 81k threshold. (Don’t know how accurate this is, though.)

  • Twitterstorm: a Modest Proposal | tiintax

    […] representative bodies who have a seat at the stakeholder table.  All power, then, to the knitters, musicians, authors and others who have created a twitterstorm over the VATMOSS/VATMESS changes I described […]

  • Tom de Grunwald

    Thanks for this post Steve, would love to hear future comments on the Bandcamp situation as they emerge.

  • Thomas

    I knew nothing about this until today.

    Ignorance is bliss eh?

    I will make at the very most 20 quid from non-UK EU sales through Bandcamp in 2015.
    I can not be bothered with all the faff of registering to owe £5 or so.

  • Cath

    An update from the Scottish / NI branch of the Musicians Union. There words are:

    “Thankfully HMRC have now confirmed that a musician will be able to register just the digital part of their business for VAT so other work remains unaffected as long as total sales are below the VAT threshold.”

    The updated piece can be found at http://www.musiciansunion.org.uk/news/2014/11/27/vat-place-of-supply-of-services-changes-due-in-2015/

  • Simon indelicate

    Commenting so as to get notified if bandcamp situation ever gets clearer. Our current plan at http://corpor.at is to block all eu sales from January – it would be very interesting if the law allows bandcamp to continue shrugging off sales tax on its t&cs while exempting musicians who use it. Operating a similar business model to them, I can’t imagine that that can really be the case…

    • Steve

      It’s getting interesting – apparently blocking EU sales is technically illegal (god-only knows why), so you might end up in some shit there, though only if you stick your heads over the parapet. I get the feeling the VAT world is going to be swamped with people breaking the law in untraceable ways…

      And Bandcamp, being based in the US, can’t be forced to comply with EU law… But I hear they have a solution/response coming some time soon… I’m really looking forward to hearing what it is.

      At the moment, other than the entire ‘why the hell is this happening? this helps no-one’ thing, is what’s required to ‘only declare your EU digital sales’ for VAT – do we need for form companies to do that? Can we register for VAT, declare zero UK vattable income and just pay what we need to through VATMOSS? That’s the implication in one of the posts that quoted a dude who worked on the legislation! But Vince Cable’s thing makes it sound like you’d need to register your ‘business’ for VAT… I don’t have a business. I’m a sole trader, and I pay self employed income tax. There’s no ‘business’ that I can fragment… It’s a massive, giant, epic fuck-up by a load of politicians who have no idea what it is to make enough money from a thing to allow you to keep doing the thing because you think the thing is important, not because it’ll make you rich…

  • Cath

    Yes Steve, what I’m hearing most is that you’d have to change from sole traders into a company and then split in two somehow in order to pay VAT only on EU digital sales while the other half of the company would still be below the VAT threshold. Which to me sounds suspiciously like two companies. What does that give us? Costs of setting up a company and costs to divide and extra time on books and returns and and and.. A complete shambles.

  • Nick Froome

    Having read some more background, it seems as though the MOSS system is setup to get round the necessity of registering for VAT in the traditional sense

    IIRC, a normal VAT registration requires an entity to register – a person or Ltd Co. I believe that once a person is registered, all their business falls under the VAT registration

    MOSS seems to split off the digital sales into a separate entity – exactly what HMRC don’t allow you to do!

    This is a win/win/win situation for HMRC – easy admin (for them), easy compliance with EU rules (for them) and no Input tax claimed (great for the Government)

    Input tax is the, er, person in the woodpile. Traditional VAT allows you to claim back tax paid on business purchases – Input tax. That’s great if you buy a new Macintosh – you can claim the VAT back then write off the cost of the hardware over time and the software immediately. With MOSS, it appears that’s not possible

    This is a lose / lose for the musician – he absolutely has to have a computer, broadband & etc to create a digital file, but he can’t claim the VAT back on these. He still has to account for the output tax, though, however minuscule

    The best solution would for all musicians to register for VAT, claim the Input tax back on their last two years expenditure, sell a few downloads then quietly deregister. To do this, under current regs, I believe you’d need a Ltd Co if you want to bill your normal musical activities without VAT

    “It’s a massive, giant, epic fuck-up by a load of politicians”

    • Roger Hughes

      It appears that if you are registered with MOSS and under the UK threshold, and thus charge VAT on crossborder EU sales but not UK ones, you can in fact claim back input VAT pro rata – if 5% of your sales are crossborder, you can claim back 5% the VAT you spend on business expenses via the usual UK VAT return (which I think – don’t take my word for it though – you have to submit anyway even with zeroes in every box). It’ll probably not be enough to compensate for the time you spend filling in VAT returns and the money you spend on a tupperware box to keep receipts in, but the principle is there.

      (And you’re still better off than you would be in Italy, where if you pick up a guitar they’ll probably bill you for money they’ll assume you will be earning in five years time, just in case.)