Warning for those who sell ebooks directly (VAT)

Okay, I'm getting increasingly confused, so I'm going to give this a whack at a summary.

As far as I understand it -- and I may be wrong -- the problem isn't actually Amazon, or at least not mainly Amazon. (Before the threads got merged, IIRC the original thread wasn't even about Amazon at all, but about selling direct -- and then when the email from Amazon came out that was an additional issue related to the same thing . . . er, I think! ) This is my understanding of what's happened:

1) New VAT laws were announced for 2015 that make it hard, as a small business (as we are), to sell any products to anyone in the EU.

2) Discussion here related at first mostly to how this will affect people selling direct. It was assumed that this would not have a great impact on those selling through retailers such as Amazon, B&N, etc..

3) Amazon sent out an email saying they will be dealing with the new VAT laws in the most illogical way possible, i.e., they will be asking us to account for them in our pricing, though they will do the accounting.

4) Discussion became about the new VAT in general and also about Amazon's particular approach to it.

Not being British, I'm not sure what the calls for political action to the British government can do, other than possibly changing things so the UK opts out? If they can even do that? Which would make it possible to sell direct to people in the UK again, even if not the rest of the EU (and make it so we didn't have to deal with adding VAT in to our amazon.co.uk price). Or maybe the UK has influence in the EU. I don't know! Someone else will have to weigh in on that.

Anyway, my understanding -- and again, I could be wrong -- is that VAT has indeed always been due on ebooks, but that the new laws will make the complexity of the legally necessary accounting process pretty much impossible for the smallest businesses, which includes self-publishers attempting to sell direct to people in the EU. I understand Polenth's statement as saying that Amazon's ridiculous approach to the new VAT laws isn't necessitated by the new VAT laws (as bad for us as they are) -- i.e., that the VAT situation is crappy for self-publishers independently of what Amazon's doing, but does not necessitate the additional crappiness Amazon is heaping on top of it in how they're responding to it.

Did I get all that right?

Personally, my main concern isn't actually Amazon. I think the way they're doing the new VAT is rather stupid, but the important part is that they're still doing all the accounting for us. My main ire at the new VAT is that I wanted to branch into selling direct, and this might stymie me from selling to anyone in the EU (and possibly selling direct period, if I can't find a way to limit it), as I don't have the resources to do the necessary registration / paperwork / accounting for every EU country.

Someone correct me if I got any of this wrong. I feel like I'm sort of feeling through the dark in all of this (in fact, I'm writing all the above out because I'm finding myself increasingly confused and am trying to get it straight in my head!). But anyway, that's my understanding of how the situation's developed . . .

There are indeed 2 issues here.

The first is the EU has changed their tax policy. VAT tax was calculated at the location of the seller. Now it's calculated at the location of the buyer. This means if you were selling to the EU from the US, you did not have to deal with VAT tax. Clearly the EU wants their tax revenue, now we will have to deal with them - though how they plan to enforce this has always been the challenge whenever tax is applied from the buyer's tax collector.

The second is how Amazon is going to deal with this. They had two different pricing models. One was VAT Inclusive and the other was VAT Exclusive. Most of us already used the VAX Exclusive price, and Amazon added VAT on after the sale.

Now all Amazon prices are going to be VAT Inclusive, which means we need to be able to set different prices for different countries based on different VAT tax rates. With VAT rates as high as 27%, and most at 20%, this is significant and we must address it.

Note that Amazon knows which country a buyer is in and does not simply base the tax rate on the Amazon store you are using. You can buy in any Amazon online store and the VAT will be applied based on the country you are in at the time (your IP address tells them this).

Apple is doing the same thing as Amazon, requiring us to adjust our prices to be VAT Inclusive.

To the folks who say "what good would lobbying do" - this is the information up on the Microbusiness Website. https://digitalmicrobusinessactiongroup.wordpress.com/about/

What they are saying is that the VAT registration thresholds vary for goods that aren't services/downloads, and in the UK there is a threshold of turnover below which you don't have to pay VAT. However

"There are no thresholds for anyone trading in digital services. This means micro-businesses selling ebooks, craft patterns, art etc must either register individually for VAT in 28 member nations each with various range of VAT rates, or use HMRC’s own VATMOSS portal which requires VAT registration for all businesses, regardless of turnover."

They go on to say how unprepared the HMRC is, and how little they know about trade on electronic products on a small scale.



SO - to me that says that

1. Lobbying and/or signing up to the microbusiness action group at the least makes it much clearer to central gov and HMRC that this is a big issue, not a side issue, so they *should* spend more time on this and not do it quick and dirty because it is a small issue on which it is uneconomic to spend much time.

2. It seems that HMRC could introduce a tax threshold for these types of businesses of the sort that already exists for other trades like builders. So there would then not be a problem for *small* traders.

There is one other angle to this - HMRC is going to have to track lots of little sales (unless everyone quits) and that could cost them more in admin than they would collect.

NEW SURVEY

The folks at Microbusiness Action Group have a new blog post up, linking to a survey that can be completed anonymously.

http://euvataction.org/take-action-now/complete-the-survey/

They are asking people to URGENTLY fill in the survey - wherever you are in the world - to show the impact of these new rules.

I just filled in the survey. It takes just a couple of minutes. It also has parts for people not trading yet. It is mainly about when you heard, how you heard, how much you understand, how much trade, how you do it and what you are doing next.

There is now also a petition to the EU asking them to suspend the new VAT for microbusinesses and sole traders.

https://www.change.org/p/pierre-mos...s-for-micro-businesses-and-sole-traders/share

About half way there on signatures, so wherever you are in the world, please let them know how it will affect you, whether as a publisher, a friend of a publisher or a reader.

For those selling direct (or who want to), Payhip just announced that it will take care of VAT for authors who sell through them:

http://payhip.com/blog/payhip-takes-care-of-vat

I just saw something on my Kindle report today I don't get. It had blue lines on the graph to show books from the lending lbrary, those that read free on prime, whatever. Come time to pay up, they're gone & part of the $$ is gone too? What gives?

unionrdr said:

I just saw something on my Kindle report today I don't get. It had blue lines on the graph to show books from the lending lbrary, those that read free on prime, whatever. Come time to pay up, they're gone & part of the $$ is gone too? What gives?

Click to expand...

I've had a borrow appear on the line graph and then disappear. I've not had any reported sales vanish, but it doesn't show returns on the graph... and you won't earn anything if it was returned. The month-to-date unit sales table is more accurate than the graph (though also takes longer to update). I don't consider it a sale/borrow until I see it on that table.

But the amounts were greater in the bottom report when the blue lines were there? Even the amounts are lower now? I thought they had to pay you for borrows? Playin' Alice Cooper's HEY STOOPID right now...they win, you loose...

The table I'm talking about isn't the one below the graph. It's the one you get by clicking month-to-date unit sales, which lists out sales, returns, and so on. The table below the graph is as inaccurate as the graph.

Ah, OK.

Update on the fight regarding VAT for microbusinesses including digital books.

In the UK, the EU VAT action group have got the message across in Number 10 Downing Street - literally - talking with folks who are looking at software implementation - see here.

http://euvataction.org/2015/02/20/we-took-your-voice-to-10-and-heres-how-you-can-help-the-campaign/

However, getting it across at the EU level is proving harder, as most of the fuss is coming from the UK, even though all EU countries are affected equally. What is needed is for authors in other EU countries, who will be affected by this, to be writing to their own MPs and relevant ministers to get it across to the EU that it is a big problem for the little people.

A quick update. After talks with the EU Parliament by EuVatAction, the Parliament have announced they will make a decision on it on 6th May. EuVatAction are hoping that the old style "pay Vat in the seller's country" can be reinstated for micro-businesses (a classification that already exists). There have been complaints from businesses across Europe now, not just the UK.

I hope this will be resolved soon. It's started to hit outside the EU with sellers in the US and Asia complaining that they are having to pay transfer fees higher than the VAT, e.g. $40 overseas transfer fees to pay $1.40 of VAT. The number of merchants and plugins blocking EU customers outright is increasing.

Now Amazon et al pays 0% VAT in EU

I was studying eBookPartnership recently. I think I'm understanding this webpage correct?

http://www.ebookpartnership.com/vat-ebooks-2015-means/

Using hypothetical 20% VAT and a retail price of $10 that is not altered by retailer in both before and after circumstances (to make for comparison):

Before the EU law a $10 eBook with 50% royalty would make an author $5, retailer would make $10 minus 20%(VAT) minus 50%(Royalty to author) = $3

After the EU law a $10 eBook with 50% royalty would make an author $10 minus 20%(VAT) minus 50% (to retailer) = $3, while the retailer would make $5 (50% of $10).

Have I got this right? Basically now the VAT comes out of the author / publishers pocket? Amazon did this before to larger publishers, I assume because the publishers make more than the VAT threshold. Whereas the EU VAT does not have a threshold hence retailers can get authors and small publisher to pay VAT too. http://www.thebookseller.com/news/amazon-charging-publishers-20-e-book-vat

PS: I'm not judging eBook partnership here, they don't take a % anyway, just a yearly distribution fee.

Also, not related but another interesting VAT Whopper: http://www.bbc.co.uk/news/business-34650014

quote: "Based on an analysis of thousands of marketplace traders he estimates up to £2bn of VAT is being lost each year."

quote: "If you have a competitor that's selling the same product as you with a 20% advantage, you cannot compete. So it is actually seriously dangerous for businesses in the UK, to the point where you could be wiped out over one Christmas."