New rules on VAT threaten digital start-ups in UK and across EU

Digital micro-businesses and start-ups have a difficult enough job as it is. At least they don’t have to worry about VAT. In the UK, we have an exemption limit of £81,000, and after that an accountant can be employed to sort it all out without too much hassle. Right?

For another two weeks only.

After that, the nightmare begins. Here’s the story.

From January 1st, all VAT arrangements change in the EU (including of course the UK), but only for digital businesses. The basic reason is a good one. Companies like Amazon have based their EU operations in Luxembourg, where VAT is very low. The EU doesn’t like that and want them to pay a fair rate. The solution is to change VAT so that it is levied in the country of the purchaser, not the supplier. BUT … they forgot to add an exemption level for small businesses. You have to do it from the first pound or euro.

Let’s take an example of a UK based website that sells eBooks, or perhaps an eLearning website that runs on subscriptions.

From 1st January, each and every individual sale will have to be entered on a government website called VAT MOSS (MOSS = mini one-stop shop). That’s from the very first pound. This is because every EU country has a different VAT rate, and they need to rebate the correct amounts to each country, according to sales. There are all sorts of additional burdens, for example the business will have to keep customer records for 10 years to comply with data protection legislation.

It’s corporate standard accounting rules for tiny one-person operations. People selling knitting patterns for one pound on ETSY are going to give up. Creatives selling fonts for a couple of pounds are going to give up. Cartoonists are going to give up.

But wait.

The nightmare has just started.

Imagine that you are a small business based in the US, or anywhere else in the rest of the world ex-EU. You too will have to register and make a return in your country for every sale you make to Europe. From the very first sale. That means that many of those businesses will choose not to sell in Europe because of the administrative hassle. You won’t be able to buy their products.

Need further advice? Sorry, HMRC hasn’t got a clue and are making it up as they go along. With two weeks left to go. Here are their guidelines.

Notice the date. 10th December. Two days ago. Before that, all telephone enquiries (e.g. by me) were met with incomprehension – they hadn’t even heard about the rule changes! And please note the making up policy on the hoof. Take just this one example, and look at the laughable final column:



Can you imagine how difficult it will be to enforce VAT MOSS? For the whole world?

This is a bureaucratic nightmare that will slow down, if not kill, the growth of digital start-ups in the UK and across Europe.

The solution is very simple, an exemption for small businesses as of now, around the £81,000 mark. That’s all.

Please sign this petition, and lobby as hard as you can over the next week. I have written to MEPs etc and made a noise on social media. Follow the hashtag #VATMOSS to join in.


Image credit: LarimdaME via Compfight cc. Text added by ELTjam.

11 thoughts on “New rules on VAT threaten digital start-ups in UK and across EU”

  1. Google have told all Helpouts providers in the EU (including ELT) to change their fees to free. They can’t charge for their time. People aren’t happy.

    As a school and publisher selling digital course products I had a bit of a think. Private ELT schools are exempt and treated services are too if they are linked to the intended educational outcome. I might be wrong, I’m definitely not a tax lawyer so don’t rely on this post, but if you read this HMRC notice carefully, like me, you might think that if you sell digital English courses as your main business you might avoid this mess. Fingers crossed.

  2. Yet again, another way to cripple new small businesses. The only options seem to be find any state job or be unemployed.

    The freelance tax office here is a farce. I cannot calculate or pay tax online as the site doesn’t work, they send random forms, no receipts, change payment percentages then charge whatever late payment fees they feel like.

    This change though is just stupid. People asked me why I made my ebooks free and I said it is because I didn’t want all this hassle for maybe 10 quid.

    How about we just print everything out and send paper copies of elearning, blog posts etc? 😉

    I know that Paypal and unregistered payments will be the only solution for some or simply trade i.e. I write 10 lessons for you in exchange for 10 free accounts or you could just pay for my online shopping this week.

  3. Completely farcical.
    Like Jason, I’m no tax lawyer, but my reading of the new rules is that, so long as you have some human hand involved in the sales process (or the product), you can supply digital products electronically without falling foul to the law. A retrograde step, but as the PDF example seems to indicate, as long as your process is not completely automated, you are OK.
    In the case of small suppliers, it may be enough to respond to purchases with a personal email, to which you manually attach the product, or burning your files to CD and posting them. As I said, farcical and retrograde.
    On a positive note, though, these new rules will no doubt lead to a crop of start-ups offering more practical workarounds!

  4. Also, one of the exceptions to this (as stated on the page you reference Paul) is:
    “educational or professional courses, where the content is delivered by a teacher over the internet or an electronic network”

    So I guess if there is any kind of teacher involvement, then no worries!

      • The definition of a digital course is that there should be no, or minimal, human intervention. So if there is a live teacher in an online classroom, fine. If there is a skype lesson, also fine. If there is a live webinar, also fine. In all those cases there is human intervention and they count as non-digital.

        BUT if the course stands alone without human intervention, then it is indeed covered by the new rules. I believe that the majority of eLearning will therefore be covered – the whole point of eLearning being that it’s anytime anywhere and doesn’t need a live teacher present.

        What about websites that offer a mix: online stand-alone courses, with the option to have live lessons in a virtual classroom as well? Many of the sites we know offer this. I seriously doubt that anyone in EU VAT circles has thought about this. My best reading of the guidelines, as a non-expert, is that the subscription to the basic site and its content WOULD be subject to the new VAT rules, but any additional payment the user makes for live lessons WOULD NOT be.

        Any accountants looking for a well-paid job should probably apply right now to Pearson, OUP, CUP, Macmillan, et al. It’s going to be a mess.

        • Did I see that support using a social media group comes under human intervention? From:

          “The below examples are what are considered enough Human interaction
          where according to the HMRC – the service would then NOT fall under the
          new VAT tax.
          1) Live Webinars – even if you offer a free PDF download – because
          there is human interaction with the live webinar.
          2) Virtual Classrooms that combine live webinars, videos, pdfs and
          human intervention.
          3) E-course that contains recorded videos and PDFs but is opened
          only at specific times but does have live interaction.
          4) If you offer coaching with an online course. Per the HMRC the
          inclusion of the live coaching means that this is not an e-service.
          5) Per the HRMC’s live Twitter chat – interaction within a Facebook
          group counts as human intervention. What I take this to mean
          is that if you sell an e-course which also gives the customer
          access to a Facebook group that you have for your clients only
          where they can ask Questions, etc. and there is live interaction
          from you and them – then the e-course no longer counts as an
          e-service and would not be subject to the new VAT Tax.”

          I agree Paul. It is going to be very messy. This is probably an outstanding example of how hierarchies are fairly well removed from what is actually going on, especially in terms of the use of technology. Google haven’t even got the news that live video calls are (seemingly) allowed VAT free! I’d love to be a fly on the wall when the shit hits the fan and someone important realises that this is going to tie everyone in the halls of power in knots. I read that this was tried in 2003 but because noone knew about it and thus it was ignored it was never enforced. Mass disobedience anyone? 🙂


    Thanks for the comments, Jason, Phil and Mark.

    Just a few things to add before I get to the campaign next steps. Here is more detail on the changes:

    And yes, it absolutely does affect Rest of World selling into Europe. The days when you could buy software from a small business in the US and have it instantly on your PC are gone, at least until the EU make some changes or the whole system collapses. Here is an official US Dept of Commerce pdf advising US businesses of the rule changes:

    In my own case, as of January 1st anyone in the world wanting to buy my self-published eBook directly from will have to wait until I can manually send it to them via MailBigFile. There will be no immediate and automatic download as I just haven’t got the time and energy to comply with the crazy rules. Everyone in the world will have to follow that kind of procedure, or be illegal. For personal disasters far greater than mine look under the #VATMESS tag on Twitter. There you will read tweets from many small micro-businesses that are going to close on Jan 1st. No UK political party is taking this seriously, except – to their great credit – the Green Party. The Green MEP for South West England has been inundated with pleas from fragile one-person microbusinesses in her region who are either going to close or face hours of extra accounting time every quarter.

    The effects on eLearning websites around the world are unknown, but it’s not looking good. Certainly if I ever decided to charge a subscription for premium elements of BEhereBEthere it would be an administrative nightmare. I hope there is a rule change, or system collapse, before that day arrives (it’s several years away). But what goes for me goes for every single provider of online courses in the world. The ‘get out of jail free’ card is of course the issue of ‘human intervention’, and here the devil is in the detail. No-one, least of all HMRC, knows exactly how much of that there needs to be to escape the rules.

    But, the fight continues down to the last few days. There is going to be a Twitterstorm tomorrow, Tue 16 Dec 2014, at 10am GMT / 11amCET. PLEASE JOIN IN. The last one got 20,000 tweets and now the campaign is bigger. If you are reading this post after that date, never mind, tweet anyway. The new hashtag is #EUVAT as the previous one was considered too UK-centric. Please direct your tweets to one or more of these Twitter handles:


    What to tweet? I personally am going to tweet along the lines of ‘#EUVAT Give digital Europe a future. No crazy red tape for micro businesses and sole traders’. That should leave room for lots of @ handles at the end. Obviously, retweet as much as possible to your followers as well.

    It is also essential to get more sign-ups for the petition here:

    Finally, the website to go to for all campaign news is here:

    • Small and large alike:

      BusinessEnglishPod, Busuu, EnglishCentral, EnglishUp, English 360, English Town, Global English, Newsmart, etc etc etc.

      And non-ELT training video providers: and the like.

      I believe – but could easily be wrong – that from Jan 1st you are all going to have to separate out your subscriptions to EU customers from your subs to non-EU customers. Then, for your EU customers, you will have to account separately for every single sub. Every quarter. ‘Separately’ because VAT rates are different country by country.

      Don’t include VAT right now? You’ll have to absorb that cost or pass it on.

      Back offices ready? Subscription pages ready? I don’t think so.

      More tea, vicar?

      • Taking English360 as an example, you need to email sales to establish an account, so therefore the sales process is not automated — there is a human hand in the process — and so they don’t need to worry. At least, that’s my reading of the rules.

        • Well, let’s hope that a manual sales process makes it okay, even if the content itself is anytime anywhere with no human intervention. That would solve the problem for us.
          It would be great to get some ‘official’ clarification on this. I guess when the existing websites next make a tax return their accountants won’t sign it off without knowing the real situation. And at that point the equivalents of all the HMRCs in every country in the world will be forced to draw the lines to say what’s exempt and what is not.
          For us small fry, watch and wait seems an okay strategy for now.
          But the pressure needs to be kept on them. Lines can be drawn more favourably, or less.


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