EU VAT & Moving Paid Plans to Patreon

EU VAT & Moving Paid Plans to Patreon

by | 10 min read
Originally posted on

This will be a slightly different issue of The Curious Engineer as I will be covering the tricky topic of VAT for those looking to either start a paid newsletter, build a SaaS, create a course or some other developer-related side hustle.

Don’t worry I will be back next week with a more technically focussed article.

My original plan for this newsletter was to provide enough value so that a small percentage (5%) would opt to support my work with a paid plan.

Substack at first glance appears to be a perfect platform for this. It is free, no matter how many subscribers you have and you can hide work behind a paywall for those looking to go paid.

Many developers and other writers have managed to build thriving businesses using this model such as:

So why am I moving my paid plan to Patreon?

As you have guessed from the title of the article it comes down to VAT.

How is VAT calculated?

VAT which is similar to Sales Tax in the US is calculated as a percentage of the sale which is then paid to the government.

Here in the UK, the VAT rate is 20%. Luckily for many businesses, you only need to charge VAT once your sales exceed £85,000 a year.

This is great for small businesses as you don’t need to worry about VAT until your sales are over that threshold. My income from YouTube, affiliates and this newsletter is not even a 20th of that.

So what is the problem?

VAT on Digital Services

VAT was always charged based on the place of supply. So if you are supplying products in the UK then you would charge UK VAT and the above threshold would apply.

The VAT rate is different in every country (in the US sales tax is different in every state).

Big corporations got wise to this and decided to set up offices in low-tax countries in Europe so they could minimise how much is spent on tax.

For example, Amazon set up headquarters in Luxembourg which at the time had a 15% VAT, which was one of the lowest in Europe.

To combat this, in 2015 the EU decided to flip this on its head for digital services and make the place of supply for business-to-consumer (B2C) transactions where the customer is located instead of the business.

This gets around the low-tax loophole that Amazon used, as they now had to charge the VAT based on the customer’s country.

Companies now need to obtain at least 2 pieces of non-contradictory evidence to determine the country, such as:

  • Billing address
  • IP Address
  • Bank Details

Then work out what the VAT rate should be for that country and register for the One Stop Shop in your EU country to pay the VAT.

Like GDPR this is one of those rules that governments like to make up without considering the technical implications.

This is obviously a bit of a nightmare but there are services around to calculate this and charge the correct amount such as Stripe Tax, which Substack does integrate with. You still need to handing paying the EU though.

This isn’t too bad if you are based in the EU as you also get a €10,000 threshold before you need to register and start paying VAT.

This is what Gergely Orosz and Luca Rossi do as they are both based in Europe.

UK and the Rest of the World

Thanks to the mess that is Brexit, these thresholds no longer apply to the UK.

In fact, anyone who is not based in the EU has a zero threshold for EU VAT which means they need to collect and pay it for every EU citizen that signs up for their service whether that be a SaaS business or a paid newsletter.

This means signing up for the Non-Union VAT MOSS service in the UK or finding an Intermediary Service (IOSS) if you are based in another country.

For those not in the UK, the UK has the same rules inherited from the EU and also requires companies who provide digital services to UK citizens to pay VAT to the UK.

If you just have a paid newsletter which doesn’t provide access to a community or source code for developers then it might be classed as a digital publication and has a zero rate in the UK but not in the EU (although don’t quote me on that).

Either way, this is a lot of extra administration especially if you have very small revenues. I am pretty sure 99% of those with paid Substacks are not in the EU and aren’t aware that they should be charging VAT to EU and UK customers.

What are the alternatives?

If you don’t want to deal with all of this VAT hassle then there are a few alternatives.

1. Ignore it

Obviously, I am not recommending this as no one wants the tax man chasing them.

However, there are very few companies in the US that actually take this seriously and charge EU customers VAT. If the large companies can get away with it then I doubt individuals running newsletters are going to have anyone chasing them.

Most of the large paid newsletters are not charging VAT even though they should be. I don’t think they are purposefully avoiding tax but are just unaware of their obligations.

Note there are some hefty penalties for not filing VAT.

2. Block Europe

As far as I am aware you can’t do this on Substack but if you run your own website then one option is to completely block EU countries from your website.

This is what many US companies do, mainly due to GDPR obligations but also to avoid having to charge and pay EU or UK VAT (for example

3. Use a Marketplace

The last option if you don’t want to deal with VAT but still be compliant is to sell through a marketplace.

There are a few marketplaces that act as the “merchant of record” for you and therefore are responsible for charging and remitting VAT to the appropriate country.

These are the most popular marketplaces that handle all of the VAT for you:

  • Patreon - most popular for supporting creators
  • Gumroad - for selling digital products and subscriptions
  • Lemon Squeezy - for selling digital products and subscriptions
  • PayHip - for selling digital products, courses and subscriptions
  • Teachable - for selling digital courses (only applies to teachable:pay)
  • Paddle - this is a payment platform that you can hook in similar to Stripe.

Moving Paid Plan to Patreon

For YouTubers and other creatives Patreon is a well-known platform that people are used to using which is why I have moved over there.

I had a few people who signed up for my paid plan on Substack (thank you if you were one of them). As I can’t guarantee what country subscribers come from I have chosen to refund everyone’s money and cross my fingers and hope they will join me on Patreon.

As Patreon will always charge VAT I have made my plans 20% cheaper than they were before so that my subscribers won’t be any more out of pocket than they were. Although this will increase in the future as the benefits increase.

The only downside at the moment is that I can’t offer annual plans until I have been on the platform for 3 months and had a certain number of sales. I will add this in when it becomes available though.

At the moment, I am keeping my profile on Buy Me a Coffee as these are just donations with no supply and are therefore not subject to VAT.

There is one big benefit of moving to Patreon and that is better integration with other tools. Unlike Substack, Patreon actually has an API and Webhooks which greatly simplifies my integrations.

Patreons who support my work also receive:

  • Source code access to all the code used in my videos
  • Exclusive content only to Patreon members
  • Access to my private Discord community (which is just me at the moment if you want to chat)

For those who feel like being generous my Super Supporter plan also includes:

  • Name added to the end of my YouTube videos (optional)
  • Personal thank you message from me

I also plan to set up private hosting for my videos so Patreons can watch them without the adverts as well as a Matrix community for those that don’t like Discord.

For those who would like to support my work, you can do so on my new Patreon page.

As for this newsletter, it will continue to be free but I may have to look into including some sponsors in the near future.

❤️ Picks of the Week

📝 Article - People Share What They Consider Red Flags During A Job Interview. In some cases, companies are desperate for new developers. Usually, because the developers they have had have fled. There are some great questions and answers to look out for here.

This one resonates:

“Well, the overtime isn’t mandatory, but most folks stick around after hours most days.”

Spoilers: The overtime is mandatory.

📝 Article - Mastering curl: interactive text guide. I shared a great post last week on awk. This one on learning curl is great. There is a lot on this page that I didn’t know you could do with that little Linux tool.

📝 Article - How we gained traction by being open source. I have been getting into open-source software a lot more, mainly due to privacy concerns (more about this next week). Even though I like open source software I have never thought they were particularly good at being profitable. Maybe I was wrong.

🛠️ Tools - A curated list of server applications with support for the ActivityPub protocol (Fediverse network). If you didn’t see my post last week I finally ditched Twitter (along with Threads, Instagram and TikTok) and moved to Mastodon. I have been enjoying it so far and I am keen to try out some other applications in the Fediverse. There is a good list here if you are looking for apps to try.

P.S. If you are on Mastodon I am looking for people to follow so come and say hi. Just search for on your instance and I should come up.

📝 Article - Google gets its way, bakes a user-tracking ad platform directly into Chrome. I have now moved over to using Firefox exclusively. If you value your privacy I would consider moving too. I think I might need to reread 1984 to see how this ends.

📝 Article - UK pulls back from clash with Big Tech over private messaging. At least on this front the UK government didn’t win and insist on a backdoor being added to encrypted messages. +1 for Privacy.

💬 Social - Rockstar is selling cracked game copies on Steam. I remember looking up No-CD Cracks for games that I owned so I wouldn’t have to use the CD every time I wanted to play it. Oh, and the occasional multiplayer with my sister without needing to buy 2 copies. I don’t know if Rockstar has lost the code for Midnight Club 2 but this is pretty funny.

As one of the of the Hacker News comments reads:

This is a great example of how today’s “piracy” is tomorrow’s “only working copy left”.

👨‍💻 Latest from me

I ended up having to take some time off over the summer but things are back to normal now and I can get back to making videos.

🎬 YouTube - 5 Design Patterns That Are ACTUALLY Used By Developers - I have been wanting to do a video on design patterns for a while. I don’t think they are very well understood by a lot of developers. I am hoping this will help.

💬 Quote of the Week

Imagine for a moment that you really didn’t need people to buy from you. Imagine that you’d secretly won the lottery and your business was only for fun now. What terms would you name in order to ensure business was fun?

From Oversubscribed (affiliate link) by Daniel Priestley. Resurfaced with Readwise.

🙏 Was this helpful? If you want to say thanks, I love coffee ☕️ , any support is appreciated.