The Fizz! Blog

Selling digital services to EU consumers? Big VAT changes coming

There are some changes coming up on 1 January 2015 to EU VAT rules which are going to have a big effect on quite a lot of businesses.  Specifically the changes affect UK businesses selling digital services (games, apps, printable things like sewing patterns say) to consumers (as opposed to businesses) elsewhere in the EU.  There's been a lot of doom and gloom about the changes ("this is the end of small enterprise"), and whilst some of that is just melodramatic (it isn't the end of small enterprise), the rules will have a big effect on some businesses, and we're very sympathetic to those who are hit by it.

At present, if you sell £20,000 of printable sewing patterns (say) online in the UK, you don't have to be VAT registered (since your sales are under £81,000) and, if you're selling to private individuals, you don't want to be VAT registered.  If someone buys and downloads one of your patterns in France, then you don't have to worry about either UK VAT or French VAT.  Even if you *are* VAT registered then you only have to worry about UK VAT, not French VAT.  Nice and simple either way.

From 1 January 2015, when that French individual buys and downloads the pattern, you're liable to collect French VAT on the sale and give it to the French VATman, regardless of your sales income generally.  That's pretty irritating.  You've really got three options:

1. Register for French VAT and do a French VAT return every three months (or however frequently French VAT returns are done).  You're obviously not going to do this, it'd be insane.
2. Use something that HMRC here have set up, MOSS - the Mini One Stop Shop.  This enables you to tell HMRC each quarter how much you've taken in sales from consumers in different EU countries, and give them the VAT to pass on to the different EU VAT authorities.  However, to do this you need to register for UK VAT, which means right away that you have to start giving 1/6th of your UK sales to HMRC each quarter!  Assuming most of your sales are to UK consumers, you're obviously not going to do this, it'd also be insane.
3. Don't sell to anyone in France, or elsewhere in the EU.

In the absence of any other solution, #3 is what you're rationally going to do, as things stand.  Which is pretty absurd - the changes weren't conceived as a way of discouraging small businesses from doing cross-border sales, but that's one of the impacts that the writers of the rules (who no doubt consider "small" to be a £50m turnover) have unwittingly created.

In the end, any sensible solution to this is going to lie with the marketplace you're selling through (Etsy or whoever).  If you're selling via a "Digital platform, store or marketplace" then they're supposed to sort out the EU VAT aspect.  However, not all marketplaces seem to be making it crystal clear whether they're going to be capable of doing this from 1st January (or whether they consider themselves a marketplace at all).  One presumes in the end that marketplaces that don't make things easy for sellers will be pushed out by marketplaces that do.  In the meantime, though, it's a big worry for anyone potentially affected.  And if you're not selling through a marketplace, you simply do have options 1 to 3 to pick from.

So, it's clearly not the end of small enterprise (it doesn't affect any UK small enterprise not selling to EU consumers, which is to say 99% - conservatively - of small enterprises), but for those who it does impact, it's a really, really big deal.  If that includes you, give it plenty of thought, and if you sell via online marketplaces, find out what they're going to do.

www.fizzhq.com

The problem with buying fees

Although we built Fizz organically, some accountants and firms try and get a head start by buying an existing accountancy firm, or an existing block of fees from someone.  In theory, this sounds like it could be a good idea - especially for accountants who lack the aptitude or desire for marketing themselves (i.e. most accountants).

On professional accounting forums, the discussion of these arrangements (here's a Q and A from yesterday) tends to focus solely on price and mechanics.  Those things do matter, but looking at it purely from that point of view implies that the customer base of an accounting firm is a commodity, to be valued and parcelled up and sold from one practice to another with ease.  It isn't.  Different firms have vastly different types of customers (in terms of industry, size, age, personality and all sorts of other aspects), and trying to just transfer them en masse from one accountant to another isn't necessarily going to work.  It might be fine, if the philosophies and working practices and communication styles of the buyer and seller are pretty similar, but that isn't always going to be the case.  It might rarely be the case, even.

There are brokers in our industry who put together buyers and sellers to do deals, and I've no doubt they do try and make sure there's a good fit between the buyer and the seller, so that the customer base is likely to be one that'll be happy working with the incoming accountant (or at least give them a fair crack of the whip).  But if you're wanting to build up a practice with a customer base that's a great fit for *you*, and you've got the time/inclination/survival fund to make that happen organically, then we reckon that's the way to go.  It worked for us, anyway!

www.fizzhq.com