The EU VAT omnishambles

Selling downloads in the EU?  Read on

The more eagle-eyed Ravelry addicts may have noticed that some paid-for patterns are no longer being offered to customers based in the European Union (EU), and some generous designers (like Gisela Beyer) are now offering their previously paid-for patterns free of charge. If you’re curious as to why, keep reading.

Here in the EU most goods and services are subject to an ad valorem tax called (not surprisingly) Value Added Tax or VAT. The rate(s) of tax applied are set in each Member State, and the national governments also decide what types of goods and services are exempt from the tax within their own borders. In the UK, for example, we pay 20% on most things but there’s a reduced rate of 5% on domestic fuel and no VAT at all on fresh food, books, banking services, train tickets and children’s clothes. Any business with a turnover above an annual threshold (currently £81,000) has to be VAT-registered, and must then charge VAT to its customers on anything that is not exempt and pay the VAT it collects to the UK government. (Bear with me here, there is a knitting-relevant point to all of this.)

This all worked perfectly fine in the days when publications were printed on paper, music was stored on CDs and software came on discs, and before we all started buying things from overseas on the internet. VAT was levied at the rate applicable in the vendor’s country, regardless of where in the EU the customer was located. There wasn’t a huge amount of cross-border retail activity. But in more recent years, large online retailers such as Amazon have exploited the difference in national VAT rates by locating whichever corporate entity contracts with the purchaser in favourable, low-VAT EU Member States like Luxembourg. They can then legitimately charge less for their products and/or make more profit. And when you’re buying a digital download, whether of an MP3 track, the latest MS Office suite, an e-book, a smartphone app or a knitting pattern in PDF form (see, I told you it would get relevant), it really doesn’t matter whether it’s coming from 1,000 miles away or next door, it’s just as convenient.

In an effort to stop this manipulation of the system and make retailers pay tax that better reflects where they carry on their business, the EU brought in new rules from 1st January this year governing the deemed place of supply for digital services. (These changes were enacted via Council Implementing Regulation No 1042/2013, if you’re interested in chapter and verse – link opens as a PDF.)

Now, when digital services are supplied to an EU consumer (i.e. not another business), the vendor must charge the VAT rate applicable in the customer’s country of residence and pay the VAT it collects to that country’s tax authority. This applies whether the vendor is based in the EU or elsewhere. As you can imagine, this has created a major headache for small businesses that have not previously had to concern themselves with VAT because they were below the turnover threshold. It is also an issue for larger businesses with limited overseas sales, because the administrative burden of dealing with a multitude of foreign tax authorities is out of proportion to the profits generated from those sales.

The UK government woke up late to the problems this was going to cause for small businesses, but it has put in place a VAT Mini One Stop Shop to assist such businesses to account for the VAT due in all the EU Member States. This provides an alternative to registering for VAT in each country where sales are made. However, users of the Mini One Stop Shop must still register for VAT in the UK, even if they are below the threshold. And they must obtain and keep evidence of where each customer is located.

The official guidance in the UK provides examples of types of supply of digital services and whether they do or don’t fall within the new rules.  Most things do, but there is one get-out that might be useful for knitting designers with limited EU sales: if a PDF document is manually emailed by the seller, then the normal place of supply rules still apply and the seller won’t have to account for VAT either in the buyer’s country or (unless the seller’s turnover is over the threshold) the seller’s. This is because the rule change only applies to ‘e-services’ that are ‘electronically supplied’, and ‘electronic supply’ means automatically delivered over the internet or an electronic network with minimal or no human intervention. You shouldn’t assume the same will apply in the other EU Member States though, because different countries interpret EU legislation in different ways – even direct-acting legislation like this Regulation. The EU VAT Action campaign says, for example, that manual emailing is not exempt in Austria.

Of course, many knitting designers all over the world make their designs available through Ravelry nowadays. The UK guidance says:

If the platform operator identifies you as the seller but sets the general terms and conditions, or authorises payment, or handles delivery/download of the digital service, the platform is considered to be supplying the consumer. They are therefore responsible for accounting for the VAT payment that is charged to the consumer.

Ravelry has been investigating the issue for some months and several solutions have been offered to designers who still want to promote their patterns through Ravelry (including emailing PDFs manually), but none is truly satisfactory. Unfortunately, some designers clearly feel that it is all too much hassle if their EU sales volume is low and have stopped selling to EU countries, which is a shame. The quotation above suggests that Ravelry will be treated as the supplier, in this country at least, and as a result it will no doubt become more insistent as time passes that designers make arrangements to handle their VAT obligations.

Having got that off my chest, let me report briefly on more hands-on knitting matters.

Blocking mats

Mats for blockingI saw a pack of interlocking play/exercise tiles in the sale in a local shop and decided to treat myself. They were only £3.99 – silly not to at that price.  No more will my photos of knitting being blocked show it pinned out on an old towel on the floor. It’s worth looking out for these play mats when they are reduced, they are a perfect blocking surface and the tiles can be arranged in whatever way best suits the shape of the piece of knitting. If they had a grid marked on them they’d be even better. I chose a black pack but, with hindsight, I should have picked the alternative grey and then I could have ruled gridlines on the tiles using an indelible felt pen. Maybe I’ll try using a white gel pen instead.

Two steps forward, one step back

My fear that the Wurm hat’s band wouldn’t fit my head were unfounded. The band is stocking stitch folded double, so rather inelastic compared with a single thickness ribbed band. Squeezed onto a set of short sock needles, it looked very small. When I’d reached the fold line of the hem, half way up the band, I transferred all 100 stitches onto a nylon cord – if only I had a circular needle of the right size, then this wouldn’t have been necessary. At first the lower edge was way too tight, but that was because I’d threaded another cord through the cast-on stitches (like a lifeline in lace knitting) to help me find those stitches again when I came to complete the band by folding it in half and knitting each stitch together with the corresponding one in the cast-on. Once I’d slackened off that lifeline, I was delighted to find that the band stretched to fit my head.

After all this messing about and putting the stitches back on a set of DPNs – I found a set of longer, metal ones in the right size, thank goodness – I knitted the other half of the hem and then laboriously picked up the stitches around the cast-on edge and finished the hem.  At this point I put the stitches back onto a cord and tried it on my head again.  It just about went on, but the cast-on edge formed an uncomfortable ridge around the inside.  So I’ve pulled it all out (sob!) and started again with a provisional cast-on.  This will give me a set of loops to pick up when I fold the hem instead of a bulky cast-on edge and should be neater-looking as well as more comfortable.  I am therefore back where I started several weeks ago, but it will be worth it.  Now why didn’t it occur to me at the start that a provisional cast-on would be a more satisfactory solution?

About yorkshirecrafter

I live and work in West Yorkshire.  I've always enjoyed crafts of all types, from woodwork to lace-making.  I also enjoy anything mathematical, which makes knitting a favourite pastime, especially complicated designs.  I've been advising businesses and industry on environmental matters for 30 years and also have an interest in green living, especially where it saves me money. I live with my husband and our Maine Coon in a 100-year-old cottage that constantly needs something doing to it.  Fortunately, I enjoy DIY too.
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