Further to my earlier post above, should have pointed out that I am actually an accountant, but no longer practising as one. You might want to run your own ideas or workaround with your own accountant just to make sure everything is ok if you really do not want to register for VAT and VATMOSS.

I think it is dreadful that so many people have written on various forums that the draconian new VAT rules will force them out of business. That’s what we get by being part of the wonderful unelected EU superstate, I guess, but that’s another debate for another time.

I would strongly suggest that those people who are thinking of calling it a day with their micro online/e-sales businesses to take a deep breath and think about whether there is a solution for them and their specific product. At least talk to your accountant if you have one to see if they have some creative suggestions to help you. Having to register for VAT can indeed be a small business killer, not least because your product prices would have to increase by an immediate 20% for all customers. It would remove a key advantage of your product over those of large companies.

Further to my own personal VAT avoidance plan that I outlined above (NOTE: avoidance, not evasion!), I would add the following suggestions to others who are currently below the VAT registration threshold and expect to stay below that threshold.

Separate out your customer base into three segments:

1. UK customer sales –
For UK customers, VAT is not applicable as long as you are below the current threshold of 81,000 of turnover. So the issue VAT being applied after 1 Jan does not apply here (unless you voluntarily register).

2. EU sales (excluding the UK) –
This is the problem one. From 1 Jan you can assume that there is a ZERO threshold for VAT for all sales in the EU except the UK. So what is necessary here is to see how you can deal with these specific sales. One simple one is to stop all sales to any customer in the EU. However, selling your product through 3rd parties such as Amazon, Ebay, etc is a realistic and easy (but not necessarily cheap) way of avoiding the VAT/VATMOSS registration issue. Selling and then physically posting a digital product on hardware (CD) and offering a free digital back up to download is a legitimate way of dealing with the VAT issue, since the sale is deemed to take place in the UK, not in the consumer’s country.

3. Non EU sales –
Again, as long as your total annual sales level falls below the VAT threshold, the VAT issue does not apply, so you can continue to sell outside of the EU as you currently do so.

Always keep an eye on the UK VAT threshold so you do not exceed it otherwise you will have to register for VAT in any case.

Always keep proper accounting records so in the unlikely event you were asked to show your records to HMRC, you would be ok.

On the issue of verifying where a customer comes from during the sale process, this may prove tricky, but the test of reasonableness should apply here. For each customer sales segment, I plan to insert a field on the sales page requiring confirmation of their residence (eg, “I confirm that I am a resident of the EU, excluding the UK”) using a simple check-box. Also it will be important to obtain the address of each customer as further evidence of where the sale is deemed to have taken place. If you use Paypal for your sales process you have the option to require the customer to enter their full address details in the checkout process. Of course this info will be essential if you are going to physically send your digital products to consumers in the EU.