What a mess! I am by no means an expert, so please do not rely on my interpretation as fact (instead look through the links I have included in this post from places of more authority on this subject), but an introduction of new EU VAT laws will dramatically alter the way pattern sellers (such as I hope to become) are legally required to do business within EU territories from 1 January 2015.
Currently in the UK you are only required to register for VAT when you earn over £81k per annum, and all sales (digital and physical) are subject to the VAT laws of the country in which the seller is based, meaning I can sell my Spiderman pattern anywhere in the world and I won't have to file for VAT (forgive my poor terminology, I'm not business literate) as I earn under the threshold. The threshold isn't even on my radar in my wildest dreams.
But from the 1 January 2015 all digital (not physical) sales will be subject to the VAT laws of the EU country in which the buyer is based, and will have no threshold of earning. If I even sold my pattern just the once to a resident of Germany (could even be a family member on holiday there buying it) I would have to register for VAT in Germany and pay up quarterly, or register with HMRC's 'one stop' VAT service. But I would still have to register for VAT and this, according to The Telegraph, will mean I will have to charge and file VAT on any physical sales as well! There is also an excellent overview of the situation available to read on The Huffington Post.
I hope you agree this is ridiculous.
Having recently decided to wholeheartedly pursue pattern designing and selling, once I had realised the full weight of this law and what it meant for me I was devastated. Before I had even begun I would have to stop and rethink what I wanted to pursue with my crafting. Perhaps there would be a way to block European customers from purchasing my patterns, though this would be unfair and would in turn prevent me from buying American patterns (easily cutting off at least something like 60% of all patterns available to buy on Ravelry).
But there has been a wonderful collaboration to help us out!
Ravelry and Love Knitting have come to an agreement which means that Ravelry designers can now sell their patterns through Love Knitting, and as they are VAT responsible people like me will not have to register for VAT nor file any returns!
It does mean that Love Knitting will need to take off VAT for any purchases, and they will take some commission, however there will be a commission free period of 6 months, no doubt to ease designers so used to the free nature of Ravelry into the new system, and also in the hopes that VAT rules might change back.
"LoveKnitting will collect VAT on sales on your behalf from the price of the pattern. The existing commission free period will be extended until June 2015 and after that commission fees will be 20% + 25p per transaction. You don’t need to be VAT registered and you don’t have to worry about time-consuming VAT registration or returns." - see the full announcement on the Love Knitting blog (correct on 27/11/14)
You can also read the full announcement on Ravelry.
This is SUCH a relief! I am currently in the process of signing up to become a Love Knitting designer - I will be certain to share my page with you as soon as it is up and running!
Although a solution (however short or long term) has been found for knitting and crochet designers, there is a multitude of other small and micro businesses at risk (online tutorials, graphic designers, self-published e-books etc.) which is why I would recommend you sign this petition calling for the VAT exemption threshold for businesses selling digital downloads to be upheld.
Will #VATMOSS (or #vatmess) be affecting you?