VATMOSS. It’s new, it sounds scary, and it’s hecka complicated. There have been a lot of posts and discussions about what this might mean, including the comic featured above that was created by Dave Walker.
British reader, twitter follower, and all around awesome guy Amaaré wrote up an excellent post explaining some of the elements of VATMOSS that is currently scaring all of us US internet content creators. He also talks a bit about how this should apply to using Patreon, along with some ideas on what we can do.
UPDATE (more details at bottom of post): TL;DR, Patreon has confirmed they’re going to handle VAT so creators don’t have to.
What is VAT?
VAT stands for Value Added Tax, this is the primary sales tax applied to products within the EU that are considered to be “luxury”, is as much as they are not required but make life better/more interesting, this is where the term Value Added comes from, it is often confusing to people who think that it adds value to the product, where it in fact means that the product adds value to the life of the person purchasing it. Not that this is always applied sensibly, such as when it is charged on fuel, which can reasonably be considered a necessity for many people, but this is a tax applied by governments who need money, so you can’t expect too much sense.
Information regarding the varying rates of VAT across the EU can be found here.
How does it work?
I’m including this as many people seem to think that it is the merchants who are being taxed. This is not the case, though I can see where the confusion might arise.
VAT is added (at the correct percentage for the country in which the customer is making the purchase) to the price of the product or service before the customer sees it. Meaning that the price the customer sees and pays includes VAT, except in special circumstances where the customer may be reasonably expected to claim it back, such as when the products are being purchased for business purposes, then the merchant may provide prices both including and excluding VAT.
When the customer buys the product, they pay the full price, including VAT to the merchant.
The merchant keeps records of the transaction and the quantity of VAT paid and pays the total VAT they have received that month to the appropriate tax offices.
What is VATMOSS?
VAT MOSS is the system which defines how VAT is to be paid by merchants operating outside of the country in which the customer makes the purchase.
The system, as it applies to UK businesses, is explained here.
The system is, as most government policies are, rather complex, but it sets out the ways in which business owners are responsible for VAT payments made on purchases by their customers.
The main part you need to know is that the one responsible for these payments is the merchant, defined as the entity through which transactions are carried out and which handles the transfer of funds, as well as the delivery of goods and services.
How this applies to you as a Patreon user is subject to some complication.
The complication arises from the fact that, in many cases, you are not supplying any goods or services to your customers, but instead receiving donations to support your endeavours.
If however you are supplying content that is not freely available elsewhere, including early access to content that will later be freely available, then you are deemed to be supplying goods and services to which VAT applies.
This does not however mean that you are responsible for paying or managing the VAT on these products. This is because you are not directly receiving payments from those customers, nor supplying content to them.
You are supplying content to Patreon, which accepts users’ subscriptions to that content and pays you based on the number and level of subscriptions that they receive.
This means that Patreon is the merchant as regards taxable transactions and is therefore the entity responsible for managing and paying that tax to the relevant tax offices.
—As a side note, this would not be difficult for them to do, a simple script set up on their subscription pages could apply the appropriate amount of VAT to reward tiers for the user’s region. Patreon would then only have to make one payment, per country, per month, provided that they stored the relevant data on a secure third party server within the EU—
What should I do about it?
At present, you may wish to take one or two precautions to ensure against changes made by Patreon to their systems to enable this.
- You can remove reward tiers that provide exclusive content and/or early access to that content. This may annoy some patrons and/or reduce your earning potential, but it should ensure that you are not liable for any payments of VAT on the remaining tiers.
- You can keep back around 20% of your Patreon funds for the time being until this situation has been resolved. This will mean that, should you be required by either Patreon or anyone else to pay the VAT that should have been charged, you will have it available to pay.
If Patreon implements a system as I suggested above, they will likely either increase the amount they take out from your payments, or adjust the amounts displayed to users on your reward tiers, whichever they do you should be prepared that some changes will be made.
I hope this clears up the current confusion somewhat.
Thank you Amaaré! Those with thoughts, questions and comments can leave them below.
EDIT UPDATE 2/26/15: Patreon has yet to make any official public statement revising or updating their current policy of ignoring VAT. Their “Tax Information” page only briefly mentions it:
I live in the European Union. What is VATMOSS and how does it affect me?
Here are two helpful links that describe the EU VAT rules. We recommend you consult your professional tax advisor for any additional questions.
They make no mention and seem to have no understanding that this also affects US creators with EU donors.
However, privately, I have heard from Patreon that they are planning and working on building tools to deal with VAT, although it was not yet decided if they would create tools for individual creators to deal with VAT (to collect the information needed) or if they would “man up” and build the tools for themselves to manage and take care of it, as it seems they should based on our understanding of VAT law. The second option is certainly what the majority of creators wish they would do.
I helped hosted a Twitter discussion about Patreon and VATMOSS under the #webcomicchat hashtag (which is archived here), so I’m not making it up when I say many creators are concerned about this. And many are already exploring and switching to alternative options like Gumroad that are on top of VAT regulations and who take full responsibility for all it’s intricacies, sparing the individual creator the hassle.
EDIT UPDATE 3/11/15. Patreon has made a official stand on VAT.
Good news! Patreon will handle the collection, filing, and remittance of VAT payments on behalf of our creators. The cost of VAT will be carried by EU patrons. As always, thank you for your patience and feedback. Patreon has your #vatmess covered so you can do what you do best: create.
This is great news! Thanks to everyone who commented, tweeted, etc, helping get this to their attention and encouraging them to make the best choice :)