***UPDATED** – Newly found information!
At the VERY bottom of the above website it states:
“Digital portals, platforms, gateways and marketplaces- If you supply e-services to consumers through an internet portal, gateway or marketplace, you need to determine whether you are making the supply to the consumer or to the platform operator. 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.”
Then Ravelry came out with this: http://www.ravelry.com/content/vatmess
“Vatmess” is right. Pay attention to “Option #5 – Do Nothing: If you don’t make any selections at all or if you select “Do nothing”, no tax will be added or paid. Should someone come after the tax, we don’t know if Ravelry will be liable or if you will be. In the UK, HMRC has said “I would not see HMRC pursuing individual designers for VAT…” and it seems they would go after Ravelry and not the designer. We do not think that services like ours (shopping carts that you connect to your own account) are the intended target of the directive but we weren’t able to get any clarity from HMRC. Things became more confusing when Etsy recently announced that “sellers are expected to collect and pay VAT”. That said, It seems unlikely that the UK would try to collect tax from an individual seller on Ravelry. The EU directive itself is not very detailed and each country is responsible for implementing and enforcing the directive individually. Other countries will have different policies and we have very little information from member countries outside of the UK. It’s also unclear if or how any countries will try to collect tax from businesses outside of the EU.”
Here’s the kicker… nobody knows… No one is 100% SURE whether the changes happening, um… TOMORROW will affect us or not. Personally, I like to ERR on the safe side. If you go through with the steps in this blog, you are no worse for the wear. The transfer to Love Knitting will not cost you a dime until June. Pulling your designs on Craftsy back to draft won’t hurt anything. You might miss some sales this spring, in which case I would be VERY angry, but we can cross that bridge when we get there. I would rather be safe than sorry myself. This was sprung on us pretty quickly so I think we’re all doing the mad scramble. My original reason for posting this blog remains. PLEASE don’t close your shops over this. Please wait it out until we have a solution. If you are interested in protecting yourself for the worst possible scenario, which takes LITERALLY so little time it almost wasn’t worth the DAYS I spent on this! lol In my opinion it is the right move for me.
Again, this shows me why I stay with Ravelry. Even though this might be nothing, they are allowing us to all prepare in case it is! Casey is giving us lots of options here and even the options where we will need to pay the tax, he’s made it worry free for us for the first 6 months until he gets it all figured out. I have to say, that’s a lot of effort. It shows me he’s thankful and grateful for our business as designers. He gets my vote 🙂
READ ON IF YOU ARE INTERESTED IN TAKING THE STEPS TO PROTECT
YOURSELF IN CASE THIS DOES AFFECT US.
Here is a class that you can take to understand VAT better, straight from the EC website!
We’ve been seeing it all over this month. Crochet pattern designers closing down shop in lieu of the new VAT laws. First, if you are one of these designers, let me express my DEEP sense of loss! Please don’t shut down until you take a look at my blog. It is my gift to those of you who are scared, those of you who are questioning, and those of you who are just plain lazy and want me to do all the work for you! :)People are calling these the “New” EU VAT laws, but VAT laws have been around ten years or more. They are not new, and actually, the only change in January 2015, is the way these taxes are reported. The actual laws are the same as they’ve always been. The only difference starting the first of January of 2015, is that the HMRC – (UK’s IRS equivalent) has stated that they will now be enforcing these laws with extreme prejudice. Basically, if you’re SUPPOSED to be collecting, remitting and reporting these taxes to the proper authorities and are NOT, you are about to be in a world of hurt. This can be scary, but hopefully I can break this down for you in a simple way that will leave you with a solution rather than a lot of questions and fear.By all means, there are options on every site that will limit your sales to only those who are in NON EU countries, but my hope was that I would not have to resort to this. I enjoy all of my fans and followers and leaving a portion of them out just feels wrong to me. However, I will also outline how to block sales on each of these pattern sites as well.
DO I NEED TO BE COLLECTING, REMITTING AND REPORTING THIS TAX?
A lot of American citizens are balking at this tax, stating that it is a UK law and that Americans should not be held accountable to UK laws if they live in another country. This was also my first inclination. However, I searched for DAYS trying to find a way that I would not have to pay this tax or cease my sales to the EU. What I found was a bit depressing. I tried (I really did) to find a way, but after my endless searching there has been no point that has been made that I have not been able to disprove with a search on the HMRC website. (In case you were wondering, it’s every bit as daunting as our own IRS website.) And then acceptance settled in. As long as I account for the percentage and raise the prices of those patterns sold TO any EU country, I won’t have to cut my profits any more than they already are cut. And for those of you who design as well, you already know how underpaid we already are. It’s not so bad once you accept it. I can gripe all I want, but I can’t make a change in the next two days. What I CAN do is prepare, know the facts, protect myself… and THEN we’ll talk about turning this on it’s ear. If we can’t, at least we can work with the sites that we sell on to make sure that collecting this tax will not put it out of business.
This tax will need to be collected if you provide digital goods (in our world, crochet and knitting patterns sold and distributed online would be considered a digital good) to countries in Europe. This is a UK HMRC law. Pattern sellers and designers who distribute electronic copies of their patterns online are responsible for collecting this tax, remitting it to the proper authorities and reporting this tax for their consumers in the UK and 27 other countries in Europe. In order to do this, you will need to be able to identify what country your consumers are purchasing from. If you are in the UK, this year you will only need to collect this tax ONLY if you make over 81,000 pounds a year, but they are saying that next year this law will change and you will be in the boat with us in the US. Countries other than the UK that are also EU countries will need to collect, remit and report the tax. Basically, if you are in any other country than the UK and you provide digital goods to any of these EU countries, you need to be collecting this tax and even those the UK who are exempt this year will be needing to look into what changes they will need to make to their own selling setup for next year. If you make less than 81,000 pounds a year in the US, you do not need to be VAT registered, but you still must collect, remit and report the tax. In order to register for VAT, you would need to register for VAT in every country that you collect VAT taxes. There are 28 of them. It is unclear if this will change with next year’s legislation or not.
To see which countries you have sold to in the past on Ravelry, you can go to the pro tab and click “Monthly Sales”. At the bottom of the page look for “we generated a report of year to date sales by country” and click the link. This will show you all the countries in which you have sold patterns in the last year on Ravelry.
WHAT IF I JUST DON’T DO IT? HOW CAN THEY REALLY ENFORCE THIS? I DON’T EVEN LIVE THERE!
The UK equivalent of the US IRS is called the HMRC. It has been said publically, that the HMRC regularly identify overseas businesses that should be paying VAT and enforce payment. Have you ever been in trouble with the IRS? I have not. However, I was lucky and was employed in an accountant’s office for a number of years. I have seen many good meaning people who just turned a deaf ear to tax law and paid the price… FOR LIFE. It is about the ONLY way to be in debt for life; to neglect paying taxes. Sometimes a very small amount in taxes can have a large amount of fees and penalties. Now, imagine that you are being audited by ANOTHER COUNTRY; a country who is America’s ally. A country who our IRS is likely to work with. The only thing worse than being wanted by the IRS is being wanted by TWO of them!
The UK is made up of England, Wales, Scotland, Northern Ireland and the Isle of Man. It is highly doubtful that these powers would enact legislation if they didn’t think they had the power to enforce these laws. Turning a deaf ear now that I know is not the way that I hope to do business. We’ve all been breaking international trade law, and it’s time to right our wrongs. The EU VAT laws fall under the trade commission and are connected to imports/exports. Basically, if you do business in another country, you have to pay the piper. I get it… if I owned a country (and someday I hope to… he he…) I would want to tax those doing business in it. I might say that I would want MY tax to be carried out and to be paid in a much easier manner that would be less cumbersome to micro businesses. But honestly, after looking at it, the reason this is a big deal right now is that these laws have been around ten years and no one adheres to it and collects the tax. This will come to pass. I believe that the reason that the UK is making a big stink right now and stating that they will start enforcing this law more stringently as of January 1, 2015, is to get those websites that are not helping their designers to collect this tax as there are other sites that do collect and have been collecting this tax for some time now. (See end of blog before Reference Section)
SOLUTIONS FOR RAVELRY PATTERN SELLERS:
If you are a Ravelry pattern seller, you now have the option to export to loveknitting.com, which is very easy! With a few clicks (instructions at the end of this paragraph) ALL of your patterns will be migrated automatically. No need to re-enter everything. Ebooks will not be migrated automatically. You will have to enter those yourself. But I think Casey has done a wonderful job in making sure us pattern designers are covered. On Ravelry, your NON EU customers will check out like normal. If a customer sees your pattern on Ravelry, and they ARE in a EU country, they will be redirected to the loveknitting.com website where they can complete their purchase there. Love Knitting will collect, report and remit the VAT tax for you. For the first 6 months, there will be NO EXTRA CHARGE for this service! After 6 months, a 20% fee will come into play, but Casey assures us that Ravelry will have a permanent solution before this is an issue. On Love Knitting, you can change options, like you can block sales to US consumers and only sell to EU countries. (In this way you can save yourself the extra fees associated with making sales on their site.) However, since the 20% charge will be waived, I see no reason to do this until the time limit comes due around June, 2015.
To authorize Ravelry to export your pattern sales pages to Love Knitting so that you can take advantage of the free fees right now and still get your VAT taken care of:
- Go to Ravelry
- Click the pro tab
- Go to Configure Store tab
- Under “VAT Handling” it will ask you if you are VAT registered. Say no.
- Click “Process through Loveknitting.com – Receive payment via Loveknitting.com instead of PayPal. We’ll email more information when this is ready.”
- Go to www.loveknitting.com and register with their website. If you try to go to step 7 without doing this you will get errors.
- Wait on your email, or check the Pro tab in 24 hours. There will appear a link that will ask you to export your patterns over to Love Knitting. Click it. It will navigate you to take some information about you, like your address and your paypal info, then it imports all of your patterns for you, and it is done. It said it would 24 hours before the patterns showed. But the entire step 7 took about 3 minutes.
To opt out of selling to EU countries on Ravelry:
(Special thanks to Stacy Krumel-Rhodes for compiling this listing for us!)
1. Select No on VAT registered in the configure store tab under the pro tab on Ravelry.
And for those who have webpages of their own:
2. Select Sell outside of Ravelry.
3. Set up a website page with “Sorry, we are unable to process EU purchases or payments at this time. We are working to resolve this issue very soon. Thank You.”
4. Use that URL on product pages on the form
SOLUTIONS FOR CRAFTSY PATTERN SELLERS:
Craftsy is working on a solution. However, their blog states that they will be getting back to us after January 1st, 2015. You cannot delete a Craftsy account, but you CAN pull all your patterns back to draft and block anyone from purchasing that way. I didn’t want to delete them and have to re-enter my patterns in case they came out with a viable solution.
To pull your patterns back to “draft” so they don’t show:
1. Go to your craftsy store.
2. Click on any of your patterns and go to the pattern sales page.
3. To the right of the main photo, you will see “Download Digital pattern” and “Edit my pattern.” click “Edit my pattern.”
4. Up at the top of the new screen it takes you to, it will say “Publish my pattern” and “save as draft”. Click “Save as draft”
Repeat until all your patterns are saved as drafts… this will keep them from showing in your store and save you the need to re-enter all the information.
SOLUTIONS FOR ETSY PATTERN SELLERS:
Etsy pattern sellers can pull the “Instant Download” option off, email every pattern that is purchased and in doing this, you are no longer subject to VAT laws. HOWEVER! Please see the response in the section below on “For those selling on their own website”. It is questionable as to whether this option is a viable one.
You can always mail out your pattern sales! That puts enough human intervention in that it is no longer a digital good! When filling out the information, indicate that it is a physical item rather than a digital item.
FOR THOSE SELLING ON THEIR OWN WEBSITE:
First, we need to identify if you are supplying a “electronically supplied service”. This would be defined as a digital service in which there is “minimal or no human intervention”. If you are automating your pattern sales you the consumer need only point, click and check out, then you are liable to collect the VAT tax. There are differing opinions as to whether delivery of a pattern via a manually compiled email in which the recipient’s email address need only be entered, and attaching the file, qualifies to make you exempt from collecting the VAT tax. It is questionable whether hosting a pattern store on your own website, where the setup of the store, delivery of the digital goods etc are carried out by only you qualifies to make you exempt from collecting the VAT tax. It is possible that different EU countries will look at the amount of human interaction differently, but as of now, it’s safe to say that most are going to say as it states on the HMRC website, that if the digital good is supplied to an EU nation, VAT laws will apply. – Direct information supplied to me via Brighton & Hove Accountants
I use Ravelry buttons to sell on my website, so I’m safe there. But Paypal Business has an option where you can accept payment and block EU Countries.
Blocking EU Countries from Paypal:
1. Login to your Paypal Business Account.
2. Go to My profile.
3. Go to My Selling Tools
4. Under “Getting paid and Managing my risk” Go to “block payments” line and click “Update”
5. Edit settings
Other sites that already account for VAT (or aren’t subject to it) that you can sell crochet patterns on:
“For anyone who has crochet patterns, you’re welcome to upload them to Crochetville. We only take a 15% commission (5% which covers the Paypal micropayments fee and 10% to us). We then pay you the full 85% that you’re due, without you incurring any further Paypal fees.
The arrangement between designers and Crochetville is business-to-business. We will be responsible for submitting any VAT, if the final answer from the US government is that the EU has jurisdiction to transfer the point of sale to EU Member States, from my state in the US (where the US government says the point of sale is).I am of the opinion that there may be no legal treaty/agreement YET giving that jurisdiction to the EU, so Crochetville may not at this time legally be required to collect and remit VAT for the EU. However, in such case that we are required to do so, we have all the technical systems in place to enable us to comply.” -Amy Shelton via the Ravelry Forum
Folksy allows you to sell your patterns, print them and mail them to your consumers! (ie: No longer making crochet patterns a digital service and therefore not subject to VAT)
Patternfish collects, remits and reports VAT for you, at a price.
Reference section –
Some of these stand more for obtaining an understanding of what it says on the HMRC website. However, know that blogs, even mine are subject to human error. Your best bet as a designer is to do what you can to collect, remit and report this tax, until you can get to your accountant’s office. I have already sought counsel on this and I have been assured by my accountant and by accountant friends that this is totally legit.
*Helpful News Articles:
*Ravelry Forum Posts on the subject:
*Etsy Blogs and forum posts on the Subject:
*HMRC, European Commission and UK.GOV Website:
*References for those who own webpages:
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