Changes in EU law mean anyone selling music downloads from their own site now have to pay tax.
From January 1, 2015, all sales of digital downloads in the EU will be subject to VAT. As well as applying to videos and e-books, the sellers most likely to be affected by the new rules are musicians and small labels offering their music online – particularly the burgeoning community of artists on Bandcamp. So if you’re one of the thousands of acts making a bit of pocket money through digital downloads, make sure you’re up on the changes.
In short, anyone who sells digital downloads is affected. As musician Steve Lawson has pointed out in a helpful blog post on the issue, the VAT charge is determined by the country the customer is in, not where the seller is based. This means you need to be registered for VAT no matter how much you’re earning from downloads, even if you’re selling music direct from your website. It would seem that the rule is intended to clamp down on tax-dodging heavyweights like Amazon, but it’s likely to have an adverse affects on thousands of small-time sellers too.
Initially it was feared that sellers would have to jump through lots of tricky hoops, including the chore of filing quarterly VAT returns, in order to comply with the new rules (the Daily Telegraph has detailed the many drawbacks to the changes). However, an update from Bandcamp has clarified that the site will be doing most of the legwork for sellers.
Under the current system, in which buyers pay sellers directly, Bandcamp does not qualify as a third party platform – meaning sellers are liable to meet VAT obligations themselves. However, Bandcamp says that “in the first half of 2015″, it plans to make payments for digital transactions flow through the site, meaning they can take care of all the digital VAT business for you, including tax reporting and payment.
Until then, however, they’ve laid out what sellers need to do. From January 1, Bandcamp will automatically determine if the buyer is based in an EU country, and if they are, it will calculate the proper VAT amount and add it to the order total. From March 1, 2015, a downloadable VAT report will be available on sellers’ Tools page.
To report and pay tax for sales in which VAT was charged, EU-based artists and labels can register for MOSS (or ‘Mini One-Stop Shop’, a website used to report and pay cross-border VAT) in their country. In some countries this might mean becoming VAT registered first. Each quarter, sellers can submit a VAT return using MOSS and pay the tax owed. The Bandcamp VAT report includes all the information needed for the return, including total taxable sales broken down by country, as well as the evidence used to determine the buyer’s location for each sale.
Bandcamp says that if you know you fall below your country’s VAT exemption threshold (£81,000 in the UK), a setting on your Profile page will allow you to disable VAT collection for domestic purchases. This would seem logical, and many labels and artists will fall below the threshold, but as the Telegraph reports, the new rule actually means that all tax thresholds have been removed for online businesses – so even selling one item for £1 means you have to register and keep records for VAT.
UK HMRC has published a flow chart which suggests that downloads sold through a third party marketplace are not eligible for VAT. Their guidance states that “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.” However, as Bandcamp’s current system sees buyers and sellers dealing with each other directly, it is not considered a third party marketplace for now.
If you think this affects your Bandcamp enterprise, be sure to read the full update, where you can also find the link for UK MOSS. You should also check out this detailed explanation from Business Matters, which covers methods of claiming your tax back. (Hat tip to @Gacougnol for flagging that up.)
The rule change is a blow to Bandcamp, which has become one of the biggest and most artist-friendly music sites around over the past couple of years. In 2014 it introduced subscription services for individual artists, and we like it so much we’ve a whole monthly column devoted to it – check out our favourite Bandcamp releases of 2014.
