36 · @3sixrecordings
29th Dec 2014 from TwitLonger
Some advice if you buy/sell music via bandcamp, to understand the new EU VAT law
This is a long, boring, but VERY important post, mainly aimed at musicians/labels who sell on sites like Bandcamp, but it's also relevant to EVERY person who buys music. Please give it a read and your full attention, because from the 1st January 2015 (aka 3 days time), artists/labels will be breaking the law if they don't act. Spread and share it too, because everyone will need to see it, especially the artists/labels.
(Also, as a disclaimer, although this information is correct to the best of my knowledge, I offer no guarantees there won't be any errors etc.. Think of it as a useful primer to get you started. If in doubt, speak to your local tax advisor and/or accountant)
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Basically, when I (me being a label + musician) sell you one of my digital MP3 files, I don't charge you (the listener/buyer) any VAT because under current UK tax rules, as long as I earn under £81,000/year, I don't need to be VAT registered. £81k is obviously a lot of money and about 99% of your favourite indie artists probably don't charge VAT because they're under this threshold. If they are over, it's a flat VAT price specific to the country they live in. So a UK-based artist earning over £81K/year would charge 20% VAT, as that is what the UK VAT rate is set at.
Unfortunately, a new EU tax legislation was agreed upon, which will finally be made law on January 1st 2015, specific to businesses who offer "digital services" (aka any thing you charge a customer to download, such as games, video, training videos, and most importantly for us - music). The new law will mean that ANYONE who offers a digital service sold via their own automated website will now need to be VAT registered, regardless of whether they are under the UK 81K income threshold. This is bad enough, but it becomes much worse when there are 28 different EU markets, with 75 different tax rates!
Here is the HMRC's definition of what a "digital service" is https://whitehall-admin.production.alphagov.co.uk/government/uploads/system/uploads/attachment_data/file/390300/VAT_MOSS_Flow_chart.pdf
And here is a a good overview of what is happening, specific to musicians.
http://www.bmmagazine.co.uk/in-business/advice/need-know-vat-regulations-websites-selling-digital-downloads/
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So what does this mean really? Well, as an example, I live in the UK and when a German fan buys one of my MP3s, because they live in a country that is a member of the EU, I would now have to charge them an additional 19% VAT on top of the existing sale price. This money is collected by me and then sent to the HMRC (the UK tax office) every 3 months,. There are around 28 EU specific regions, each having their own VAT rates. EVERY single country in the EU will need to be accounted for separately when I file my VAT return. That's over 20 pages, every 3 months, separate from the annual income tax return. Basically, it's an accountants worse nightmare.
It becomes even more insane because if this German fan was to buy my music while he was on vacation in France, then he now gets charged French VAT rates instead! This is because the VAT is specific to where the customer is located at the time of purchase, not their nationality! What if they're on a train at the time of purchase, travelling from Poland to Germany? Well, it is then determined by the country they were located in before they set off! Sounds ridiculous? Yes. Yes it is.
This isn't just a UK problem either. ALL countries are affected. If you live in the USA and intend to sell digital records to any country in the EU, then you too will need to pay VAT tax directly to the HMRC. Live in Australia or Mexico? You're affected too, sorry!
https://www.gov.uk/government/publications/vat-supplying-digital-services-to-private-consumers/vat-businesses-supplying-digital-services-to-private-consumers#scope-of-rule-change
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So here's the problem. If you're an artist who sells on Bandcamp now, you will be breaking the law if you continue to sell your music after Jan 1st 2015 and don't charge EU customers their specific VAT rate. It doesn't matter if you sell just 1 record or thousands. If you charge money for your music, then you need to be VAT registered. Your only option is to either comply or remove your music from sale from the website, effectively killing your business in the process. Not just Bandcamp too, if you have your own website or use a similar service like Limited Run, then you also need to comply or risk prosecution for tax evasion. This will mean MUCH more paperwork and potential accounting bills, just to keep on track of things (and keep you out of court)
Now for music BUYERS (which is probably most of you reading this), if you live in the EU, then you are now going to be paying about 20% more in price for your digial music, games, videos etc.. As if prices weren't high enough!
In addition, the rules state that everyone who charges VAT must keep their customers data for 10 YEARS after the point of sale. This data will include things like your name, your address, your payment details, your IP address (to prove your location, remember?) etc... This was previously in the hands of the payment provider (like Paypal) but now it's also the responsibility of the individual company/label/artist to keep it too, in case of an audit! I don't need to tell you of the massive potential security risks that could and will happen as a result of this... Oh and we, the musicians, are charged £35/year to register with a data protection service to agree to keep your information safe. It might be even higher for your specific country.
Honestly, the whole situation is made 1000x worse because for many of us, this new law came like a bolt of lightning out of nowhere. Chances are that this is probably the first time you've heard of it. I literally found out about it yesterday and have been scrambling to read up and educate myself on it, so I wasn't breaking the law in a few days time.
~~~~~RECAP AND CONSEQUENCES OF THIS NEW LAW~~~~~
So here's the deal. From 23:59 on the 31st of December 2015, I will have to remove all digital music from sale from my https://3six.bandcamp.com page, at least until I get my label VAT registered. It can still be streamed as normal, but you just won't be able to pay for it. It's either remove it all or set my entire digital discography to free (it's currently pay what you want for most albums, but I can't even use that now in case one of you decides to be kind enough to actually support me)
For my http://www.3six.net website, I will also be forced to remove all digital downloads from any physical record you buy from me. If you buy a vinyl record or CD bundle from there (and my bandcamp page for that matter), it will no longer include the MP3/FLAC file, as this will be classed a digital service. Physical records on their own are currently unaffected by this, so I will still keep them up for sale as normal.
I have no clue as to how this will affect my new EP "Pulse Dive" which was due to be put up on sale next month. That release may have to be a vinyl-exclusive with NO digital download for the time being. Luckily, my site will let me add digital downloads to any order made retroactively, so when you buy the vinyl record and I eventually get my VAT registration sorted, you should be able to download the digital file immediately afterwards, with no extra cost.
I'm sorry, I know this is SHIT, but I literally can't do anything about this for the moment.
If you've made it this far, then like the rest of us, you're probably scratching your head thinking "WTF have I just read?". It's complicated, it's boring and it's a complete pain in the backside. Many of you are probably thinking this doesn't even apply to you, but the reality is, it's going to completely change the game for both buying and selling music. This new law is going to have a HUGE affect on the musicians and labels you know and love from January. I imagine that most of them, like myself, will have no choice but to remove their music either temporarily or permanently. The smaller, less-known artists will be hit the hardest. You, the customer, will be paying more for your music, and in an industry where convincing people to actually buy music is hard enough, it's going to be made even worse because of this ruling. It's a shit-show for everyone, basically, except the corrupt bureaucratic wankers who run the European Union.
The communication from the government was dreadful and the burdon of responsibility ultimately falls on them to inform businesses about the new change to the law. I received no letters or emails from them. Sites like Bandcamp found out about this a month ago or so, but even they did email their users to let them know about it. Best yet, when I spoke to my accountant friend about this last night, even he had no idea what the hell MOSS was! We were all left in the dark, almost until it was too late.
Here are some websites with some additional reading, so you can get yourself fully-educated on the subject. Don't wait too long, because this all comes into effect from January 1st 2015!
http://www.bmmagazine.co.uk/in-business/advice/need-know-vat-regulations-websites-selling-digital-downloads/
http://darkfloor.co.uk/eu-vat-darkfloors-bandcamp/
https://whitehall-admin.production.alphagov.co.uk/government/uploads/system/uploads/attachment_data/file/390300/VAT_MOSS_Flow_chart.pdf
https://www.gov.uk/government/publications/vat-supplying-digital-services-to-private-consumers/vat-businesses-supplying-digital-services-to-private-consumers#eu-vat-rule-change
https://www.gov.uk/vat-registration/overview
https://www.gov.uk/register-and-use-the-vat-mini-one-stop-shop
Finally, here is a petition to call for the intervention of this new law for businesses under the current VAT exemption Threshold. SIGN IT.
https://www.change.org/p/vince-cable-mp-uphold-the-vat-exemption-threshold-for-businesses-supplying-digital-products
Thanks for reading.