As a follow on from a post the other day about the impending changes to EU VAT regulations which have caused panic amongst digital product creators, there may be a glimmer of hope.
Again, I’m not your tax advisor accountant or lawyer. Do your own research. Contact your own advisors.
After some further digging it appears there may be a way to make your business bulletproof from these regulations. However it involves a small tweak to your business model which may or may not be feasible.
Offer Webinars Or Live Support
Below is a table taken from the UK HMRC website. It shows that webinars or an online course with support from a live tutor will not be covered by the new rule changes. This is because there is a level of human intervention involved which takes your product outside the scope of being solely electronically supplied.
Examples of electronic supplies and whether or not they are ‘digital services’
| Service | E-service? | Electronically supplied? | Covered by the new rules |
|---|---|---|---|
| Pdf document manually e-mailed by seller | Yes | No | No |
| Pdf document automatically e-mailed by seller’s system | Yes | Yes | Yes |
| Pdf document automatically downloaded from site | Yes | Yes | Yes |
| Stock photographs available for automatic download | Yes | Yes | Yes |
| Live webinar | No | No | No |
| On-line course consisting of pre-recorded videos and downloadable pdfs | Yes | Yes | Yes |
| On-line course consisting of pre-recorded videos and downloadable pdfs plus support from a live tutor | Yes | No | No |
| Individually commissioned content sent in digital form e.g. photographs, reports, medical results | Yes | No | No |
| Link to online content or download sent by manual e-mail | Yes | Yes | Yes |
By adding a system like a help desk for customers to ask questions or doing an extra live coaching call each month for new customers you could potentially fall outside of these regulations.
You may even be able to setup a Facebook group as part of your product and the manual approval and moderation of this may also count.
However I’m saying ‘potentially’ as I’m still waiting to hear back from HMRC whether this is the case for FastMember. We are most definitely hands on with our support when needed, and we do the occasional live webinar, so I think we have a good case for falling outside these regulations.
Your business may also be in the same position, so it could be worth contacting them about it.
If it’s not, then maybe consider making a few changes.
And besides, having direct interaction with your customers should be an important part of growing your business. It can help you find out what they really need and let you deliver more value. Even the simple addition of a Facebook group really helps you to understand your customers on a deeper level.
Be careful with Facebook though. I hear they are tightening up their rules about selling on their site. I guess as long as your group is focused on delivering value and not a pitchfest then you should be ok.
I’ll post an update from HMRC on this blog as soon as I get a reply.
Let me know what you plan to do and if you see this as an easy change to make to your business model.
Great wee post mate.
Yes, I’ve seen more and more references to the ‘tutor/live support’ being an active loophole to all this.
The key reasons for this new legislation is to stop the likes of Amazon and offshores setting up in the channel islands, Luxembourg etc. And charging near zero VAT (in effect tax avoidance)
It’s just highly unfortunate that micros and SMEs have been caught in the tailwind.
What HMRC have clearly stated is you can split your business into UK and EU/ROW so in effect continue trading within the UK without the VAT implications and with VAT elsewhere.
Interesting times ahead.
Bear in mind for any serious entrepreneur that hitting and even smashing the £81k VAT threshold should be a target making it an inevitability anyway 🙂
Cheers!
Paul.
Sad thing is, small businesses shouldn’t have to find loopholes to stay in business. But seeing as big business have been actively exploiting loopholes for years to avoid these taxes I think this is fair game.
In reality these new rules can’t be practically enforced. Imagine the cost of chasing down every single SME who may be liable. It’s crazy to even think this is possible.If some EU state is coming after you, it’s likely because you owe enough to make it worthwhile.
But i’m definitely with you on the last part. Any serious entrepreneur should be aiming to smash 81k a year.