Digital sales, VAT & Paddle

1

Another thread has got me revisiting a subject I’ve not full read up on, but I’m getting there.

My understanding is, if a digital product is supplied via an automated process, VAT must be charged/paid. I assume this is full rate VAT, so in the UK, 20%. So, if I sell something for a fiver, a quid of that is VAT, and so needs to go to VAT man.

Paddle though, say they handle all this for me, all the collecting of VAT from the various countries, but only charge 5%. But how? If VAT is 20%, how can they only charge 5%? Is that 5% on top of the VAT rate?

I know VAT paid on purchases can be offset against sales, if you’re VAT registered, but even if Paddle somehow offset these purchases, the VAT payable is still going to be more than 5%!

Confused!

Aside to this. My understanding is if a digital product is sold online but delivery isn’t automated, VAT doesn’t have to be charged. By, “not automated”, the regs seems to say “reasonable human intervention” in the delivery process. So, taking an online payment for something, gathering the buyers email address then manually sending them an email with the digital goods attached is seen as enough human intervention to make the transaction outside the scope of the digital VAT rules.

Obviously having to send emails out after making online sales in a PITA, but, it could also be a very nice saving. Plus, you get to put two fingers up to the tax man, which is always nice :-)

So, anyone know if anyone in the RW world works this way?

2

Reading up some more on this, and it appears that whilst yes, if in the UK you do need to be registered for VAT if you are selling digital products and supplying them automatically to EU customers, you can register under the VAT MOSS scheme, which means you do pay the VAT on the digital sales, but crucially, you don’t have to charge VAT to your regular, non-digital, UK based clients.

So this is, if you like, a sort of quasi VAT system, which simplifies the whole thing and makes selling digital products directly with an automated delivery, not the headache many seem to think it is.

3

There are 18 different VAT systems in the 28 countries in the EU (until 29 March at least). Any digital downloads sold into any of those 28 countries is liable for VAT at the rate for that EU country and must be paid to all 28 countries every 3 months on time or there could be penalties which extend some years back in time. In other words you cannot possibly even track and pay this VAT which you are required to do so by law. You, as the vendor, must put in place to prove when the buyer resides so that you know that country they claim to be and you must prove you have a system to do this. This has nothing to do with being VAY registered in the UK and applies to everyone and that’s why you can no longer buy 99p knitting patterns from Grandmothers off eBay. A bitter blow indeed.

Paddle act as the vendor and add the VAT to the net price for the relevant country which is added to what the buyer pays. Paddle pay that VAT to that country. You get charged 5% or whatever off the net price.

If you post software by CD I believe you get around this major embuggerence.

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Depending what you understand under system, there are 28, as VAT is handled in each county by itself.

Even more a +1 for Paddle.

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Right, got it, thank makes total sense.

The other bit you wrote, isn’t actually correct. First off, it’s all about the delivery method, as to whether VAT must be charged/paid, not the product (assumes it’s a digital product".

Plus, you don’t have to pay into the separate states, the VAT MOSS system exists to do that for you: You make the one payment, which is then split, equally or on a pro-rata basis, I’d assume.

Unless what I’m reading on the governments own website is wrong, or I’m misunderstanding it.

I’d suggest, 90% of what people think they know, they know because of what they’ve read on forums, or websites who also think they know. When you start to actually read the rules, it’s often a very different picture. Unless as I say, I’m not understanding things correctly: I’ve been reading it all for about three hours now, so brain is very fuzzy!

A good example of this “thinking you know” thing is GDPR. Almost everyone based their version of the regs on what they read on “expert” websites, almost no one read the regs. I did, it took two years to full digest them!

I’m so fucking rock and roll.

6

Too much sherry again?

7

I normally take a small sherry, after snorting cocaine from a hookers arse.

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Ok, too much sherry for you for tonight.

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I’ve been off he booze for nearly ten days now I’ll have you know. Had the mother of all sessions weekend before last, took a week to recover.

Jut too old nowadays :-(

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I can’t recall what the issue is but to be eligible for Vat Moss I seem to recall you had to be VAT registered in the UK. There was a show stopper.

Not sure what the definition is but delivering software or any code via an automated download system is one of the things this applies to.

Why do take a small sherry from a hooker’s arse after snorting cocaine. You should know by now, it’s sherry, cocaine and then hooker’s arse.

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11

True. Same in Germany.

True.

12

Kinda right, but also a bit wrong too.

Yes, in the UK you need to register for VAT. But, if total turnover is before the threshold you don’t have to charge VAT to UK customers.

So, while you will need to make returns, you don’t have to add 20% to your invoices to any small businesses you supply, which was my main motivation for selling a business and getting out from VAT last year: Many of my clients are sole traders, below the VAT threshold, so with me being registered at the time, it meant my prices were (to them) 20% artificially high.

Personally, I’d say this little caveat is a game changer to taking all the profit on digital sales, and not having to give away 5%. Plus, you’d get to price in GBP’s, so hit a price point, important for the impulse buyer.

I need to read up on what you can reclaim the VAT back on, if you’re using VAT MOSS and only charging VAT on digital sales. I suspect, it’s nothing!

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This is difficult. Because it might be that you are above another threshold in one of the 27 other countries. All countries have a different threshold.

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I also think (if you were thinking of doing digi sales) that it’s worth looking into the whole “human intervention” thing regards the delivery.

How hard can it be to setup an email client to auto reply to emails with attachments based on the subject or body contents? Yes, this is technically automated, but, if there is human intervention along the way, perhaps to physically hit the “send” button, well, then this isn’t an automated delivery system, so no VAT needs to be charged/paid, no matter where the buyer is located.

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Nope, that’s covered, it’s based on the threshold of the country you’re in, not the buyer. So for me, that’s £84k (I think!).

Totally shit for me when I relocate to Spain: VAT threshold there is zero! (Maybe have to relocate the business to Ireland at the same time ;) )

16

…and of course if you are a non-EU developer you can just conveniently ignore the rules (break the law) and gain a 20% unfair advantage :(

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17

That’s what I’d do, from April this year ;-)

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No you won’t - it is all transferring into UK law after Brexit

19

I’ll pretend I didn’t know then.

20

When I launch the new. I Saw You Coming Stacks site, I shall use paddle to sell paid versions of my free stacks that have most of the features removed.

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