Do you sell yoga eBooks or instructional videos online? Guided relaxation downloads? PDF guides to yoga?
If you sell these outside the UK, to people in the EU, then you need to know about a new EU law that is coming into force in January 2015 that will mean you are instantly liable for VAT – on everything you sell! This could have huge implications for you…
Why it sucks for yoga teachers
One thing that many yoga teachers find difficult is that their income is limited by their physical ability to teach. Whether you run your own sessions or are paid by a studio there is always a finite amount of yoga our bodies, and voices, can manage to teach in a week.
Being able to find extra money through what are known as ‘passive’ income streams, such as pre-recorded beginner’s courses, eBook or PDF how-to guides, can be really important, especially if you are on a teaching-break due to an injury or maternity leave. Often the market for these products is not limited to your locality, or even the UK, which makes them a great way to boost your (often meagre) income.
So what is this new EU VAT Law and how does it affect me?
From January 2015 a new EU VAT law means that anything that is sold digitally, and then downloaded by the purchaser, has to have VAT charged to it, at the rate set by the EU country where the person who is buying the product is currently situated.
There is no threshold so the seller (you) becomes liable to pay VAT after any sale at all, even just a £1 sale. Not only that but you have to pay VAT to the country the customer is in, and as a result you’ll probably have to pay it in the UK too.
VAT? Explain it to me
Currently in the UK if you turnover less than £81,000 a year you do not have to register for VAT.
This means that you do not need to charge VAT on your yoga classes or other services or things you sell if your turnover falls below £81,000 a year – most yoga teachers fall into that category I would think!
VAT is currently set at 20% in the UK so if you are VAT registered you have to either add 20% to all your prices, or lose 20% from your current income. Neither is an ideal scenario, and it is unlikely the benefit of getting VAT back on business purchases would outweigh the losses you would suffer in either income or customer numbers.
Confused? Here is an example
Alice is a yoga teacher living in Leeds, UK. She teaches yoga classes in her local church hall each week but also has an eBook on how yoga can help you deal with grief, which she sells to people all over the world via her website.
Alice sells her eBook to a customer who lives in Spain. They pay and download the book in Spain. Alice is now liable to pay VAT on the guide to the Spanish Government.
In order to do this she decides to register with a new system called VAT MOSS to help her deal with the complicated issue of paying VAT in a country she doesn’t live in and can’t speak the language of. But she also has to register for VAT in the UK as a result of signing up to VAT MOSS.
This means she now has to pay VAT of 20% on every booking she takes in her yoga classes, on her yearly retreat and all her workshops to the UK government. And she has to submit quarterly VAT returns to HMRC.
What else do the new rules apply to?
Here are a few things that yoga teachers sell that fall into the new rules
- Downloads of videos – such as beginners courses or instructional guides to yoga postures
- Audio downloads – such as guided relaxations or audio guides to yoga postures
- PDF guides – such as the excellent Illustrated Yoga Asana
What doesn’t fall into the ‘digital’ category?
If you offer a physical service, or something you have created as a one-off, you are OK. So for example selling yoga classes through an online booking system is fine because the customer comes to you and it is a hands-on exchange. Also if you do a live conference call or webinar to deliver your yoga classes to someone abroad (and it is not sold as a pre-recorded video) then that should be OK too.
Here is the HMRC’s quick guide
Argghhh! What can I do?
If this applies to you (and do take time to make sure it does, it won’t apply to everyone) then people are suggesting there are a few things you can do:
- Only sell your digital products through a distributor/re-seller – they then pay the VAT but you will get much less for your product than selling directly
- Stop selling your digital products to EU countries other than the UK
- Register for VAT in the UK and VAT MOSS (think carefully about this)
- Make your product free (hmmmm!)
Rachel Andrew has written an excellent article on how this new law will impact small businesses with lots of information on why you might or might not want to register for VAT, and other practical issues which have helped inform this blog. Read it here
Can we stop it?
I have no idea but we can try! There is a lot of pressure being put on the UK government to ensure that the UK threshold for VAT applies to digital products sold in the EU, therefore removing the whole issue and meaning we can all sink back into Savasana.
Thanks to Living Yoga with Stella for raising this issue on Facebook
Disclaimer: I am not a tax expert. The information in this blog has been researched online and all sources linked to above. The situation is very likely to change. For full and proper advice please consult an independent tax advisor and/or the HMRC.
Edit: Initially I said that VAT returns had to be prepared by an accountant, which they don’t. Phew.