VAT OSS Compliance – From Aelia EU VAT Assistant to Simba Hosting’s WooCommerce EU/UK VAT/IVA Compliance

In this post, we will describe our updated plans for the Aelia EU VAT Assistant, and our recommendation on a solution to comply with the new VAT regulations introduced by the UK and the EU, which affect the taxation of physical goods sold to customers in the EU, UK and Norway. Due to the complexity of the subject, the article is somewhat long, therefore we prepared a summary for your convenience, which you can find below:

1. Aelia established a collaboration with David Anderson, founder of Simba Hosting and author of popular plugins such as Updraft Plus. They offer a comprehensive, fully tested solution, called WooCommerce EU/UK VAT / IVA Compliance, which offers an extensive feature set. It covers all the aspects handled by the EU VAT Assistant does, as well as the new regulations that came into effect in January and July 2021. From now on, Aelia will recommend WooCommerce EU/UK VAT / IVA Compliance as a solution for VAT compliance.
2. We decided not to release our own version of a VAT compliance product to cover regulations for UK and OSS, which affect physical goods.
3. We will offer an optional data migration service to users who wish to convert the data stored by the EU VAT Assistant to the format used by the WooCommerce EU/UK VAT / IVA Compliance plugin.
4. We extended the lifespan of the EU VAT Assistant, in its current form, to the 30th of June, 2022. This is to give our users sufficient time to migrate to the solution from David Anderson, or to another solution for your choice.

Below you can find more details about this decision, and our recommendations to keep your shop running smoothly.

Background

We developed the EU VAT Assistant in 2014, and it was meant as a solution for internal use, to help us comply with the EU VAT MOSS regulations for digital products that would come into effect in 2015. At the time, there wasn’t a solution ready. We came into contact with David Anderson, founder of Simba Hosting, who was facing the same challenge, and we discussed the possibility to develop a plugin together, to help the owners of a WooCommerce shop complying with the new regulations. Although the plan didn’t go through, we remained in contact with David all these years, and we helped each other with the development of our respective solutions.

In 2015, we noticed the turmoil caused by the new regulations. Several analyses, performed by independent sources, indicated that the average cost to update an e-commerce for compliance with the VAT MOSS regulations would be around 10.000 (ten thousand) Euro. That would have been prohibitive for small and medium merchants, therefore we decided to make our EU VAT Assistant available to the public. Back then, we had three possible choices:

1. Release the EU VAT Assistant exclusively as a paid plugin, like the Aelia Currency Switcher, Aelia Tax Display by Country, and our other plugins.
2. Release the EU VAT Assistant as “freemium” plugin. That is, offer a free solution, with a basic set of features, and a paid solution, with a comprehensive set of features.
3. Release the EU VAT Assistant as a free plugin, with all the features included, and fund its development and maintenance costs by selling premium support plans.

We evaluated each option, prepared plans for each one and made some projections in terms of potential cost and revenue. In the end, we decided to go with the 3rd option. We released the EU VAT Assistant as a free plugin, without restrictions or limitations, and encouraged our users to support its development by buying a paid support plan.

The challenge we faced

Our calculations indicated that, for the business plan to be sustainable, we would have had to reach a minimum “critical mass” of recurring revenue in no more than a year to be able to keep maintaining our plugin. We calculated that we needed at least a certain percentage of paying users to cover the cost introduced by the whole user base. Such a percentage was fairly low, and it seemed reasonable that we would have been able to reach. Other companies follow a similar model, and they charge between 50 to 60 Euro for every single support request, therefore we saw our pricing as competitive, and thought it would give us an additional edge. In short, it all sounded like a viable plan.

Unfortunately, even our worst case scenario forecast turned out to be too optimistic. The revenue from paying users has been dramatically lower than our most pessimistic forecast, and way too low to cover even the basic development and maintenance cost for the EU VAT Assistant. Based on our original business plan, we should have retired the plugin back in 2016, when it became clear that the product was severely underperforming. However, rather than just “pulling the plug” on it, we tried different strategies to increase the revenue. Unfortunately, they didn’t work, either.

The reason why we have been able to keep the EU VAT Assistant available for free was that we used the revenue generated by other projects to cover the running cost for our VAT solution. Although that was meant to be a temporary solution, we have been doing that for more than seven years. The year 2021 brought several important changes, and we had to review our plans accordingly.

The changes in 2021

It feels as if 2021 started yesterday and, yet, it’s already gone. Besides the “usual” news about the COVID pandemic, this year brought two important changes to the world of e-commerce:

1. Brexit came into effect on the 1st of January, 2021.
2. The new EU VAT OSS regulations, which affect the distance sales of physical goods, came into effect on the 1st of July, 2021.

These events introduced several changes in how an e-commerce would have to handle VAT. Amongst the most important, we can list the following:

1. The UK left the VIES service for the validation of VAT numbers. UK VAT numbers now have to be validated using a dedicated service.
2. The UK introduced a rule to apply a VAT exemption for consignments shipped from outside the UK, when their value is above 135 GBP.
3. The EU introduced a “place of supply” rule to calculate VAT for physical goods.
4. Similarly to the UK, the EU introduced a rule to apply a VAT exemption for consignments shipped from outside the EU, when their value is above 150 EUR.

As mentioned earlier, we developed the EU VAT Assistant for our internal use, and specifically to comply with the EU VAT MOSS regulations that affect the sales of digital products. Although the new rules may seem straightforward, from a human perspective, they introduce changes to reporting, filing of returns, and other ancillary aspects.
 

Our original plan for 2021 – Brexit

At the end of 2020, we announced the development of an addon for the EU VAT Assistant, to handle the changes introduced by Brexit. Amongst the other features, the addon would have added the possibility to validate UK VAT numbers. The addon required a lot of hard work to implement, especially due to the complicated logic required at the time by the online services provided by the HMRC Revenue and Customs. We launched a Beta of the UK Addon in January 2021, and made it available to selected users, to test the validation and VAT exemption of UK VAT numbers.

Soon after the release of the addon’s Beta, we reviewed our plan and we realised that, from a business perspective, we were again on the wrong track. The EU VAT Assistant still generated the bulk of the development and maintenance work, without bringing in sufficient revenue to cover them. Around the same time, we received the news about the VAT OSS regulations, coming into force in July 2021, which apply to the sales of physical goods. As an EU business that only deals with digital products, we weren’t aware of them.

Our second plan for 2021 – Brexit and EU VAT OSS

After reviewing the list of features required to cover Brexit and the VAT OSS, we came to the conclusion that we had to change our business model, to make it viable. We needed to find a way to deal with the existing maintenance cost, which we have been covering ourselves until now, as well as the development and maintenance of all the new features for Brexit and VAT OSS. We scrapped the idea of addons, which introduced additional complexity and made the pricing complicated, and decided that it would be a better option to replace the EU VAT Assistant with a new solution. The new plugin would be exclusively premium (i.e. paid), and include all the features needed to comply with the original VAT MOSS regulations, the new VAT OSS and Brexit. As a stop gap solution, we also provided a couple of workarounds that can be used to get closer to compliance with the OSS regulations while using the existing EU VAT Assistant.

The development of the new VAT solution proceeded through the year, although slower than expected. This was due to a series of events, some of which outside of our control, as well as the fact that we had to prioritise several large projects for our customers. During the development, we kept in touch with the authors of other VAT solutions, to share opinions and check if we were going in the right direction.

An unforeseen challenge

The conversations with other developers were productive, and brought to light a gap in our process. The new regulations from the UK and the EU are complex, and they may change in the future. However, we’re not accountants, nor tax advisors. Taxation is not our field of expertise. We don’t have staff dedicated to that area, and our solutions are not vetted or audited by a Revenue Office. Due to this, there could be regulations of which we are not aware. Just like we didn’t know about the VAT OSS coming into effect in July 2021, we also didn’t know about Norway’s VOEC scheme, which came into effect in April 2021.

It became clear to us that, before we could claim that we have a solution to help complying with the new regulations for the UK, the EU, Norway and, possibly, other countries, we would have to fill this gap. To do so, we would need to bring on board someone with the required expertise on international tax compliance, up to speed with each new regulation. The investment would be significant, and that would reflect upon the price tag of our new premium solution. That price would become higher than initially planned and, most likely, out of reach for most of our existing user base.

Our new plans

After reviewing all the information at hand, we realised that our new product would not be competitive. There are other VAT compliance plugins available, which already offer the features we were working on, at a much lower price than what we could possibly offer. Due to that, our conclusion is that the best course of action for our users would be to switch to one of the existing solutions and, eventually, migrate the existing data from the EU VAT Assistant to the new one. As of December 2021, we are no longer planning to release a OSS VAT compliance solution and we put its development on hold.

Our recommendation for OSS compliance

If you’re using the Aelia EU VAT Assistant, and you need a plugin to help you with the compliance with the VAT OSS regulations, Brexit, or Norway’s VOEC Scheme, we recommend to switch to the WooCommerce EU/UK VAT / IVA Compliance. Its author is is David Anderson, founder of Simba Hosting and author of the popular Updraft Plugins backup plugin. We worked together on a common VAT compliance solution in 2014, before we went to develop the EU VAT Assistant. We kept in contact with David since then, exchanging opinions and suggestions on how to improve our respective solutions. Having seen his VAT plugin at work, we can vouch for its quality. If you have any questions about his product, you can reach David via the Simba Hosting website: https://www.simbahosting.co.uk/s3/contact/.

Need to migrate the EU VAT Assistant data? We can help!

We are planning to offer a migration service to convert the data stored by the EU VAT Assistant into the format used by the WooCommerce EU/UK VAT / IVA Compliance plugin. This would be a once-off operation, which we can schedule at a time convenient to you. After the migration, we can help you removing the extra data from the database, as well as the EU VAT Assistant, so that you can keep using the WooCommerce EU/UK VAT / IVA Compliance plugin instead. If you wish to avail of that service, please contact us and we will get back to you with a plan and an estimate for the migration.

What are the plans for the existing EU VAT Assistant?

We will keep the EU VAT Assistant available, in its current form, until the 30 June 2022. The plugin will keep working as it does now. We will keep testing it against the new version of WooCommerce up until the retirement date. You can keep using the plugin for now, but we would encourage you to switch to the WooCommerce EU/UK VAT / IVA Compliance in due time, to ensure that you can keep collecting VAT information.

Any questions?

We would like to thank you for having read this far. We’re aware that this is a long post, but we thought appropriate to give you a good overview of the reasons behind our decisions. If you have any questions, please feel free to reach us at any time: https://aelia.co/contact/. We will be happy to give you any information you need.

The Aelia Team