VAT Changes & VATMOSS to Decimate the Digital Product Marketplace – JAN VAT changes and Vattmoss doom1st 2015

VAT Changes in the UK may spell the end for UK and European Small Businesses especially those just starting up.

From January 1st 2105 VAT on Digital Products will be chargeable in the place of purchase not as previously- in the place of supply.

This also means that for any business selling even one digital product in the UK VAT Unless based here ) will be payable on all sales including non- digital items and the current  £ 81,000.00 per year VAT threshold will no longer apply.

To Clarify some points:

What digital products are included ?

For the purpose of VAT it is any product which is provided over the internet with little or no human interaction. this can include:

E-books,  Downloadable software licenses,  E-courses, Recorded training videos, Music, Downloads and SaaS ( Software as a Service), membership sites.

What are not ?

The VAT changes and VATMOSS will not apply to Downloads via App stores ( where these are handled by the store), Sales through E-marketplaces ( where they handle all VAT – You must check) , Paypal sales if they authorise the download, Business to Business Sales, Digital Services which contain human interaction.

What do you have to do ?

This bit isn’t pretty. You have two choices I’ll give you the worst first:

  • Register for VAT and pay it on all sales – yes ALL sales.
  • Register for VAT  in every EU state where you have sales.
  • Keep a record ( for 10 years – EU regulations) of every sale the amount, the country in which it was sold (with two non-conflicting prices of proof i.e. IP address and card details, VAT rate in that country ( 28 of theses with 75 different rates).
  • Hold name and address details for customers which will nececitate registering under the Data Protection Act.
  • Submit quarterly VAT returns to the UK and/or the Eu states to which you have sold with payment.

Option Number Two –  VATMOSS

First you register for VAT then take the VATMOSS option. This stand for VAT  Mini One Stop Shop it doesn’t take the pain away but the HMRC think that it helps. See what you think.

When you have signed up for VATMOSS once again your £81,000 threshold has gone but by registering your payments to the appropriate EU states, that you have sold to, are organised for you by the HMRC.

A late change to this will allow you to charge VAT only on your EU sales and remain VAT free on the UK ones.

What can you do ?

I have to confess that I am at a loss to give constructive advice the only way to avoid the VAT changes and VATMOSS introduction with the mountain of hard work they bring but here are some ideas:

  • Add interactive content to your product so that it’s no longer eligible. This won’t help if your product is an E-book.
  • Don’t sell into EU countries outside of your own.
  • Sell through an E-marketplace.
  • Split your Business into UK only and  Europe only – it won’t cut the paperwork but it will prevent you charging VAT to your UK customers.

The smaller you are – the worse it is

Larger businesses will have the staff and infrastructure to deal with this additional burden but the small business and sole trader will find it hard. It will be a huge increase in the unproductive work overhead and often for a minute or nonexistent additional income.

Between 3,400 and 4000 UK businesses will be adversely affected with the start ups and entrepreneurs either being completely discouraged or at best heavily deterred from entering this marketplace. The effect of losing out in this market can only be bad for the UK economy and all this from a Government that tries to portray itself as the friend of small business – I think not.

Closures have started

Already some businesses have decided to withdraw from the market due to the VAT changes and VATMOSS situation here’s one but I’m sure that you will be able to find others:

It would appear that many payment processors do not have the ability to capture the two pieces of ” unrelated” data that the VAT man wants you to retain for 10 years. So if they can’t how the ….. can you ?

What Next

There is an active opposition to this new madness and I would recommend that anyone who is affected should join the protest. i will be posting news items of changes or ways round the detrimental effects as they occur. Please sign up for my Newsletter to be kept up to date.

To protest sign the petition here:

If you have any ideas please let me know and I will add updates to the article based on your comments.

Update to VAT Changes article – Jan 2015

I am sure that ways to get round the new VAT laws will emerge and any that I add at the moment are my thoughts only you will have to check anything that I say with your accountant but don’t expect him to be any more certain than I am. We live in uncertain times.

Although some, and I stress some, affiliate marketers will handle the VAT where ever you sell many will not and most payment processors will not. Payment Processors such as PayPal do not seem to qualify, as they do not market or offer the product for purchase directly from themselves, nor do they distribute the product to buyers; they only operate as a “middleman” for payment, where the buyer pays them, and then they pay the merchant.

B2B Exemption

If you sell only on a B2B basis i.e. you sell to other businesses only you may be exempt, BUT, in order to prove this you will have to collect the VAT number of the person buying from you. As customers are reluctant to find such info just to make a purchase this could lose you sales.


There are several software products available that will help to do the job for you such as Taxamo and I am certain that many plugins and new products will be arriving on the scene in the near future.

Stop selling to EU states other than your own

This was my first reaction. I get very little from EU states out side the UK so why not stop selling to them completely – job done. Well hang on it’s not that simple.You have to have a good, acceptable reason to do this and be able to prove that it is genuine.

You could stop selling to the EU on the basis of an objective reason such as it will cost too much for you to comply with this legislation or that your Intellectual Property is not properly protected in the EU. To do this you  would need to add a warranty to your terms and conditions stressing that the customer’s place of supply is the UK and also a confirmation that sales are not made to the EU due to intellectual property laws and asking them to confirm that their place of supply is in the UK.

Once again a bit heavy.

Living with the New Rules

I am sure that we will all get round the situation in our own way and hopefully not join the list of businesses who have been crushed by the VAT changes and VATMOSS itself. With VAT at up to 27% in some EU states and being changed annually just keeping up with it can be a job and a half.

You can’t afford to fall behind once you are in the VATMOSS scheme as you will be removed if you are late with just one quarterly return and that means registering in the EU states that you deal with IN THEIR NATIVE LANGUAGE, better bush up on your Latvian ( are they an EU state – oh no here we go ).

Other Related articles

VAT Returns – Deadlines and Penalties


I have already received so much interest and information on this subject that I will be writing updates at regular intervals passing on advice and experiences. If you have anything you would like to share please use the comments facility.  To receive these regular updates register ……




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