Skip to main content

Bookkeeping for Crafters

Lesson 11 of 33

Understanding VAT

Lauren Venell

Bookkeeping for Crafters

Lauren Venell

Starting under


Get access to this class +2000 more taught by the world's top experts

  • 24/7 access via desktop, mobile, or TV
  • New classes added every month
  • Download lessons for offline viewing
  • Exclusive content for subscribers

Lesson Info

11. Understanding VAT


  Class Trailer
Now Playing
2 Why Bother Bookkeeping? Duration:17:51
3 Your Sustainable Wage Duration:12:27
4 Cash vs. Accrual Accounting Duration:12:17
5 Lesson 5- Chart of Accounts Duration:13:12
8 Product Development Duration:33:23

Lesson Info

Understanding VAT

This is the number one question that I got before this class aired I don't know if any of you guys are aware if you sell on a digital products like patterns et cetera but a lot of crafters are getting into digital goods these these days um selling e books selling patterns um selling I don't know all kinds of stuff instructions and charts those air digital goods and uh as of january first of this year there was a new law passed in the you're technically an amendment to an existing law whatever um that anybody who sells digital goods to a consumer in the european union needs to collect the vat regardless of where you're located as a seller and then send it into the appropriate country um apparently they were losing a lot of money to big giants like amazon where people would buy digital goods like they would by um you know, an e book or uh, music or a movie that then they just downloaded and so they were avoiding all this tax because normally what happens is if you sell a physical good to...

someone in the u for somewhere else that they have that um when that person gets the package in the mail in order to get it from the post office they have to pay uh the customs fees they have to pay processing fees and I have to pay this is that it's often very hefty it's often like a good twenty twenty five percent at least of the cost of the item in all of these taxes and fees but the government always gets those fees because you can't go on get your package without it right you have to go and pick it up um with these digital goods they're instant they're instant downloads so you know the onus is on the customer to then say, well, I bought this movie and I should be paying you know, twenty five percent vet or whatever um I'm gonna go march down to the post office and like, fill out a ticket and pay them some money and if that doesn't happen so um you figured out that they need to make this compliance happen on the business end of things uh but now you're making businesses outside the european union comply with tax laws within the european union and there's currently no exception for the size of the business you are um I've been hearing rumors that the uk is working on some legislation to, uh set a cap too that that if you make less than I don't remember what it is two hundred thousand dollars a year or a million dollars a year you don't have to do this so it's just the big players who really have to keep track and then send in these that amounts um uh but in a nutshell it effects anyone selling digital stuff to customers in the european union regardless of where you're located in the globe um I don't know how they would enforce this I don't know if the swiss tax authorities air going toe like jet over to california and come knocking on your door and be like excuse me, you owe us twelve cents you didn't submit this and now the gendarmes are gonna comment like take you away I don't know um so to comply technically what you need to to as a business selling digital goods to anybody in europe uh well in the eu is you would need to register to be of that collector in some country in the you you can pick because you don't live in the u traditionally people have used luxemburg for this because it had the lowest that rate um and so it helped big businesses it's not worth really getting into uh it makes no difference where you register now because you have to collect the appropriate tax in every country separately. Um, if you sell to a lot of different countries, you can use the vat ma it's, which is the one stop the mini one stop shop that's what that stands for, um, where through that country that you registered for, uh you conjoined the mini one stop shop and basically filed one return that covers all the different countries instead of having to send in a separate tax return that tax return toe all the countries you've just done business with. Ah, and then you will submit the vat to every member state at their appropriate rate, which is crazy. So everybody was asking me beforehand, are you gonna cover this stuff? What do I do? This is nuts. Um, so unfortunately, there are no great options here, but I will give the people watching at home and abroad. Um, a couple of possible options that you can use um, if you're selling someplace like etc uh for example, you can choose which companies which customers you do business with, which come much countries they're located in, and so you could if you really wanted to stop doing business with people in the u all together. Um some companies have gone that route already because they just can't handle it. Um it seems like no one got a whole lot of notice about this new rule. So none of the e commerce platforms are set up for this, yet at sea is not set up for its shopify has not set up for a big cartel is not set up for it. Nobody has anything in place yet to deal with this um so most online shops especially don't even have the option to like check a box that says you know, collect that like it's just it's not even in there um it seems like it kind of came out of nowhere so another option you could use is to, uh, mark up your price is such that it would cover that when you have to submit it just include it um you could even either use the highest rate uh to make sure that you covered all your bases and then if you have overcharged you just keep that extra money um but that pricing can affect how many things you sell obviously, um or you could market up to what the average that is I think it ranges from about three to twenty five percent within the you so you can either do charge you know, choose a twenty five percent mark up or you could choose something in the middle around I don't know fifteen percent um this only applies again. I just want to emphasize to digital products if you are selling physical tangible goods it's up to the customer to pay all of those customs and duties and taxes when they pick up their stuff from the post office although it is nice if you do sell frequently to people in countries where they have that to let them know in your, um you know, shop policies or in item descriptions that, um if you're located outside the us you may be subject to these extra fees just be aware um because in most countries where they have that that is baked into the price like here in the u s when you buy something you see the price and then you see the sales tax and then you see the total um in a lot of places the vat is baked in so people are just used to the prices of things that are advertised including the taxes already so if you sell to folks outside the u s it's nice to let them know up front any place you can that taxes are not included in your prices and that they should expect to see those when they pick up their shipment um if you, uh run with paypal you can start on ly using things like paypal to collect uh, payments on your digital goods papal will allow you to set the tax rates for all of these different countries and so when a consumer buy something from you and they use paypal from denmark or in france or wherever um you can have it add the appropriate rate um but like I said, a lot of the other systems the other merchant service providers and e commerce platforms don't have anything set up already teo even add that let alone the right rate toe label it correctly it's all just kind of a mess do we have any questions that you wanna have a big one coming up? This is fascinating because course, once the has been added that this is the european law to a product of disreputable that can't be removed, so they've already gone so far down the road there's no going back and maybe have to adjust how it's applied or the rate but now it's there it's there but it's the fact that this includes businesses outside the is a fundamental change, right? The has never been charged to any supplier outside of the yeah, so that's the big difference is that now it's foreign businesses to the u who are responsible for collecting taxes for a country that they're not even part of, um, which is very strange for a us business. Um, I think a lot of us businesses don't even really know about it yet unless they do a lot of business with countries in the u um but everybody who was signing up to watch this class from the you even though you guys already have that they're very familiar with it was like, I don't know what I'm supposed to do now I really hope you're covering this s so I hope that this was somewhat and lightning and made things a little simpler um, on your resource sheet, which is part of the bonus materials um, are several links about the vat and about consumption, taxes and sales taxes, including a nice link that a friend of mine grace dough bush put together? She has its I put the link on the resource, and she has a great chart of e commerce platforms that crafters use that are really appropriate for crafters. And so she's put all kinds of information and comments about them, and she just recently added a column about, um, what they've said about this new digital, that compliance what shopify has said, what big cartel said, what else he has said, um, short answer right now, not much. They're all, I think, still gathering their thoughts and figuring out what they're going to do about this. Um, but at least you have all of the links, and it'll get updated as more information comes in. So if you do have more questions about that that's, a nice place to start, especially if you use one of those online platforms.

Class Description

It is common to be intimidated by math and money, but managing your business’s finances doesn’t have to feel overwhelming. Bookkeeping for Crafters with Lauren Venell will give you the confidence and skills you need to start and maintain your own small business ledger.

Lauren is an artist and educator committed to making financial solvency accessible to independent entrepreneurs. In Bookkeeping for Crafters you’ll learn the basics of managing your money and how doing it yourself can reveal important opportunities for your business.

You’ll learn about managing different types of income and expense accounts and how to painlessly prepare for tax time. Lauren will make predicting fluctuations in your cash flow straightforward and easy while helping you develop a system that is right for you – even if you prefer pen and paper over spreadsheets.

If you are ready to change your relationship to money and manage a ledger that is customized to the way you do business – this is the class for you.

Be sure to check out Lauren's other course Bookkeeping for Etsy Sellers.



There is so much fantastic information in this course that I had to purchase it even though I watched the free broadcast. It's real hands-on stuff, not a general description of what bookkeeping might be, but an actual guide to manage your business' finances. Thank you for all the insights and workbooks! I highly recommend this class.

Bekah Kitterman

Months after watching the live broadcast of this course, I am still so glad I bought it. I find myself coming back to it over and over again just to refresh my brain on how to manage all of my numbers. I'm new at having a business and doing my own bookkeeping, and this course has been extremely helpful as a tool to help me set things up well and keep me on track. Highly recommend especially for those new to business and bookkeeping or intimidated by taking care of your numbers!

Carla Sam

Wow, this course was jam packed full of insightful information (not just about book keeping!). Lauren was great at simplifying the process! Even though I watched most of the 2 days free broadcast, it was a wise investment to purchase the course and now I can re-watch at my leisure and fully take it all in. Thanks Lauren! :D