Paid user upgrades. Are they legal?

[Stuart Wright]

Hello folks,
our sales agency charge £250+VAT per month for a Commercial Social Account. We're UK based and all our customers thus far are also UK based.
A Commercial Social Account is a normal account with a secondary usergroup added which shows an AVForums Sponsor ribbon and it entitles users to post references to the company/brand/products/services which they represent. (It is against our rules for a representative of a commercial organisation to reference the company/brand/products/services they offer without a Commercial Social Account).

I would like to use the Xenforo paid user upgrades system to allow members to upgrade their own accounts, but I have some questions.

First, is the system legal given that there are various hoops the EU makes us jump through for digital sales?
Do user upgrades count as digital sales? I suspect they do.
VAT on digital services in the EU - GOV.UK
I think the Xenforo paid upgrades system (and all other payment systems) will need to apply a VAT rate appropriate to the country they are in. It currently doesn't.

Second, what if a competitor or someone from a dodgy company purchases a user upgrade? We don't want that. So we need to moderate all user account upgrades. The Xenforo account upgrade system doesn't do that, either, I believe.

Does the paid user account upgrade system do everything it needs to do?

 

[Mr Lucky]

Do user upgrades count as digital sales? I suspect they do.
VAT on digital services in the EU - GOV.UK
I think the Xenforo paid upgrades system (and all other payment systems) will need to apply a VAT rate appropriate to the country they are in. It currently doesn't.

Yes, I have looked into this and they definitely count as digital services.

I account for them under the UK VAT MOSS scheme which makes it easier than accounting in each EU country.

 

[Stuart Wright]

I account for them under the UK VAT MOSS scheme which makes it easier than accounting in each EU country.

How does that work, then?
Do you use the standard account upgrade payment system? I guess you don't charge VAT then?

 

[Mr Lucky]

How does that work, then?
Do you use the standard account upgrade payment system? I guess you don't charge VAT then?

I do use the standard upgrade system. neither Xenforo nor paypal make this easy. We monitor where people are, after making an upgrade people are directed to a form to give us theiir place of residence. I then include the VAT in the upgrade price - until Xenforo catch up with this or there is an addon, I can't see a really elegant way to do it. On my ecommerce site I have a plugin (Taxamo) which automatically adds the country VAT and accounts for it, however the xenforo ones we have to do manually, looking through the Paypal statement and tieing up with the country info.

To be honest the whole thing is a mess.

I have an addon request:

Add-on - EU VAT automatically applied to user upgrades

And another whole thread on the subject:

User upgrades and new EU VAT regulation re: digital services

 

[sbj]

They are legal as long as you act legal.

For more information:
The UK's E-Commerce Regulations

or a bit quicker to follow:
Is Your Website Legal?

For EU regulations, see:
European Union (EU): Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market (Directive on electronic commerce)


For example all UK based people (and people in the EU) have a right to know your exact physical (office)address. I don't see that information on bottom of your website.

 

[Zynektic]

Sorry if this is a silly question but I own my website and I'm in the UK, the forum license owner is however in the US and I am sure he used his address on the license. We have paid upgrades and also adsense which go back into the forum, never our own pockets.

The domain is registered to me and a UK address, so I assume it would be me who needs to comply to these now, show my business address and charge VAT? We always used USD as a currency going into his US PayPal/Stripe account. If that is the case, putting them in his name and address would be fine and we would not be breaking any laws or what not as we planned to move them into his name anyway.

Hopefully that is somewhat clear and thanks for any advice.

 

[Mr Lucky]

show my business address and charge VAT? We always used USD as a currency going into his US PayPal/Stripe account.

I would think it is he who is liable for declaring any profit/loss.

I'm not sure however that income being paid into the US or the company being US means no EU VAT is liable as this is based on the country of download not upload. I have heard of US companies who have become compliant, others who think they don't need to.

 

[Zynektic]

Okay, thanks for the information.

I am probably scraping that system anyway as we have a forum currency you can earn and upgrade with which has no real cost to use/provide users for so we may stick to this.

I'll look into Google Adsense, as far as I am aware I have to declare my business, address and stuff on check-out for that.

 

[Sadik B]

I have worked on several sites selling User Upgrades / Digital products and it is indeed perfectly legal. The biggest hurdles are faced by sites operating in the EU where now they are required to charge VAT for all the upgrades they sell.

Paypal indeed has a feature where it is possible to auto-calculate VAT rate based on the user's country

Using Your PayPal Account Profile - PayPal Developer

However the problem with this is that you have to first define VAT percentage for every country in your paypal account, which needless to say would be impossible to maintain given rates can change. The best case option is to ask your users their country before sending them to Paypal and depending on their answer pass the VAT rate accordingly. For this to happen, your own system must know the VAT rate per EU country. There is an amazing Free API service which keeps updated with all the EU Vat rates out there

EU VAT Rates Web Service

No intention to advertise, but I am working on auto-adding the VAT tax rate passed to Paypal based on the above API in the next version of PemBer so potentially this will be possible.

Of course you also have to get your VAT registration number. If your site operates out of UK and sell upgrades, it is highly recommended that you do.

 

[Mr Lucky]

If your site operates out of UK and sell upgrades, it is highly recommended that you do.

Note that for UK sites, if you operate under the UK VAT threshold (something like £80,000 turnover) then you do not have to charge UK VAT, but must still do a UK VAT return entering "0" in all the columns. If you are under the threshold and you register with HMRC for VAT to use the MOSS scheme for EU downloads, then make sure when you fill in the online application, you put as business type the option "Digital Services under the VAT threshold."

Of course, to be legal, you should also account to HMRC for tax.

 

[Stuart Wright]

To be honest the whole thing is a mess.

Sounds like it. Too much of a mess for us as it is. As a limited company already VAT registered, we already deal with all the usual accounts, PAYE etc. , though an agency sell and invoice for all the advertising so we don't have to deal with any non-UK invoicing, the account upgrades would be a departure from this. Which is why I started this thread.

For example all UK based people (and people in the EU) have a right to know your exact physical (office)address. I don't see that information on bottom of your website.

I wouldn't bloat the bottom of every page of our website with that information.
About AVForums

 

[RandallC]

Why not set a price and include the VAT in the price?

 

[Mr Lucky]

Why not set a price and include the VAT in the price?

This is what I do, however is far from ideal.

 

[RandallC]

Im from the US so excuse my ignorance, but is the VAT a straight percent or amount

 

[Zynektic]

On the description or somewhere, I assume we need to mention it includes the VAT in the price? I am not sure whether you need to list that or not for legal reasons?

 

[Liam W]

Im from the US so excuse my ignorance, but is the VAT a straight percent or amount

A percentage, that varies country to country.

(It's currently 20% in the UK)

Liam

 

[Mr Lucky]

On the description or somewhere, I assume we need to mention it includes the VAT in the price? I am not sure whether you need to list that or not for legal reasons?

Most people wouldn't care, but if a user is VAT registered, they would certainly need to know as they would then be able to reclaim, or not be charged, the VAT.

This makes it quite complicated. For a UK to UK transaction, the purchaser pays the VAT and then reclaims it at the end of the quarter. But for a UK to EU transaction, if the customer is VAT registered in their country, then it is normal for them to not be charged the VAT, once they have furnished the seller with their VAT number.

 

[RandallC]

Why did they make it so complicated.........

 

[Zynektic]

There is so much I would not even have done without searching and reading replies in this thread, thanks!

 

[Stuart Wright]

Why not set a price and include the VAT in the price?

VAT = Value Added Tax, (like the USA's sales tax) which is a different percentage depending on what country you are in.
And the European Union has passsed a law which says that everyone who sells digital products has to charge VAT at the rate of the country of the purchaser.
So charging the same VAT rate irrespective of country would be illegal.

Country & Standard VAT Rate
Austria 20%
Belgium 21%
Bulgaria 20%
Croatia 25%
Cyprus 19%
Czech Republic 21%
Denmark 25%
Estonia 20%
Finland 24%
France & Monaco 20%
Germany 19%
Great Britain & Northern Ireland 20%
Greece 23%
Hungary 27%
Republic of Ireland 23%
Italy 22%
Latvia 21%
Lithuania 21%
Luxembourg 17%
Malta 18%
Netherlands 21%
Poland 23%
Portugal 23%
Romania 24%
Slovakia 20%
Slovenia 22%
Spain 21%
Sweden 25%