I realise I should have written about this long before now. However, I thought (and assumed) that most freelancers were aware of their obligations regarding the new and ridiculous EU VAT rules, and which restrictions did and did not apply.
What is EU VAT?
Introduced in January 2015, it was designed to close a loophole to stop big businesses avoiding tax by registering as microsellers. This move actually harmed microsellers, as was predicted. We are talking about microsellers such as independent music producers, those who sell ebooks through their websites, sewing patterns and so on, even if they sell one copy – must register for VAT and pay it at the rate of the customer’s country of origin.
Since my original post regarding Upwork charging VAT I have had a few concerned emails asking me to clarify some of the points I raised about who sells what to whom and who and who is not eligible. I must admit, at the time of writing I did not completely understand it myself and became quite concerned that I would have to register for VAT or give up my EU clients on Upwork and elsewhere. It took several weeks of reading around to allay my own fears that I was not, in fact, breaking the law. What I found out and did not write about at the time was that:
If You are a Freelancer Working B2B, You Are Not Eligible for EU VAT
As a freelancer, I am selling my time as a service, not an actual product, and the products I supply as part of that service are irrelevant. Therefore, I am not required to charge my EU clients any VAT unless I go above the turnover set for regular VAT in the UK (part of the UK’s original negotiations on VAT means we have one of the highest thresholds for tax purposes, it’s around £70k).
Even if I produce an ebook for a client and charged a fee, I will not have to charge them VAT because I am providing a unique service. They, in turn, if they intend to charge customers for the download of that ebook, are obliged to charge VAT on every sale.
What Is Eligible For EU VAT?
The short answer to this is anything that will be downloaded and paid for by multiple people, typically a consumer service. The most obvious examples are:
- “How to” PDFs and videos
- Digital art work
- SaaS (Software as a service)
- Customisable (but not customised) ebook covers
- Digital stock photographs
- Apps that you will sell direct for profit
What is Not Eligible For EU VAT?
Anything that is made for one consumer, usually a business, where there is a hands-on approach. This will include:
- Editing and proofreading
- Individualised blog posts and web page content
- HTML coding and web design
- Ebooks that you supply and charge at a single cost to somebody who will sell it B2C
- App design for a third party that you will not sell direct
- Any other digital service that is supplied B2B
I have tried to give only a brief explanation here of the main points. If you want a more thorough explanation, I have found this article a useful resource and the most clear and concise.
Brexit Means Brexit Means No More EU VAT?
Sorry to burst your bubble, but the battle to reform this daft EU VAT law is not over. The referendum for the United Kingdom to leave the European Union does not mean that this is all over for the UK. On the contrary, nothing may change.
At present, we are still in the EU and still liable for it. Article 50 has not been invoked and we still do not know when it will be triggered, although present suggestions appears to be January 2017. If we retain what is being called “access to the single market” after this date along that which Switzerland and Norway have, it is highly likely that we will be obliged to continue to comply with much of the EU legislation as before but without having a say over those laws.
Retaining EU VATMOSS may be part of any Brexit deal package. For the website EU VAT Action and their supporters, the battle goes on – possibly beyond the UK leaving the EU. If you have not taken action and want to do so, I suggest you do so now (click here for their suggestions on what to do). Thanks to the actions of the team, the EU Commission will discuss a potential threshold by the end of the year. With your support and pressure, we could finally make the EU work for small businesses in the way it was supposed to.