User upgrades and new EU VAT regulation re: digital services

[Mr Lucky]

I'm guessing that the number of forums which have stopped user upgrades is in the single figures.

I tend to agree. I think at least the smaller forums will probably be "under the radar" and get away with it, at least until they repeal the stupid law. I still think it would be good if it was made a bit easier for those who wish to stay legal. In my case a much larger percentage of my hobby making money online (to give away) is done via a shopping cart, and the fact that Woocommerce have very quickly made it possible for that side of things to be compliant, I intend to try it.

 

[Lawrence]

How can user upgrades be considered a digital service? An upgrade is not a service, it is just a promotion, IMO.

 

[Mr Lucky]

How can user upgrades be considered a digital service? An upgrade is not a service, it is just a promotion, IMO.

My fault, I wasn't clear.

The way I explained it to HMRC when asking advice was giving as an example that an upgrade could give a user on a website access to different areas of the site, or more storage space for images, or the ability to upload larger attachments. Those are the sort of things I include in upgrades.

Both HMRC and my accountant (plus another accountant I asked about this) all said that would be covered under this law.

I am not sure how other upgrades may apply, e.g. if it is much less significant a "service" ie somebody just gets their name in green instead of blue.

 

[Lord Squishy]

How can user upgrades be considered a digital service? An upgrade is not a service, it is just a promotion, IMO.

I don't understand the question honestly. In what way is it not a service? Even if it were a 'promotion' (what does that mean in this context), how is that not a service?

They are according to my accountant and HMRC (with whom I spoke at great length yesterday). If they pay for and receive a benefit or increase in service on the website via an automated system, then it is covered. It is not relevant that they do not download anything.

Yes, this would also be my interpretation of it as well. In fact, specifically, from the EC's explanatory notes:

2. Paragraph 1 shall cover, in particular, the following:
(a) the supply of digitized products generally, including software and changes to or updates of software;
(b) services providing or supporting a business or personal presence on an electronic network such as a website or a webpage.

I think it's clear that the definitions laid out in the Annex to the notes cover user upgrades. But then, to be honest, I'm not sure why anyone would think they didn't; that sort of thing would have been caught by any kind of VAT/sales tax before, too.

 

[Mr Lucky]

that sort of thing would have been caught by any kind of VAT/sales tax before, too.

Yes I believe this is true, but up to now most UK forums would not need to account for any VAT unless their income was above the £81000 threshold.

Under these new rules you need to account only for upgrades to members inother EU countries. If you are below that threshold, you don't need to worry about the UK VAT.

 

[Bram]

Selling an add-on and emailing the files manually is OK.

Wait a second Are you telling me that if user x purchases a (gaming) code from me and I send out the digital product to him via email (as I do) no VAT needs to be applied?

If so, I have thrown away a lot of money towards to the tax authorities

 

[Bram]

you would really need to contact your local tax authority to seek clarification for your specific circumstances

***Disclaimer for Dutch inhabitants***

Never do this! As you are waking up the tax dog yourself. Never ask the local tax authority for any clarifications as a) they will give you multiple different answers b) you need to identify your business upon your call which will result in to c) you are going to be checked (whether or not you are playing by the rules).

Instead seek advice from a consultant/expert.

 

[Mr Lucky]

I highly doubt small US based businesses will be required to collect VAT.

It seems they are, if they sell in the Eu (as interpreted by this law - a download by an EU customer is a sale in the EU.

So collecting for the EU would be out of the question and unenforceable.

I imagine the very small companies will just stay under the radar, hopefully until they change the stupid law.

However it is increasingly possible for this kind of thing to be enforceable. I think a few years back there was very little liaising or cooperation between government bodies, tax authorities etc.

In this more digital age it is much easier for them to cooperate.

For example, my wife is a US citizen living in the UK. She recently received a whole new raft of paperwork from a financial advisor. When we asked them why, the reason is that it has to be collected on behalf of the IRS who are now attempting to verify the locations and financial status of all US citizens living abroad.

Conspiracy theory? You have to wonder why a UK financial authority would be doing this if they are not getting any information back from the IRS.

 

[Mr Lucky]

Never ask the local tax authority for any clarifications as a) they will give you multiple different answers b) you need to identify your business upon your call which will result in to c) you are going to be checked (whether or not you are playing by the rules).

I did this. I agree I did get conflicting information, however once I pointed this out and asked to speak to a supervisor I was passed up a to a senior level to somebody who did know the rules. He apologised for me being given conflicting information and admitted the ruling was so new some of the staff were under trained and struggling.

He was able to be very clear, accepted my thoughts on how the website should be made clearer and give me very useful information.

At no time were my business details asked for, although I would have been happy to give them as I am not, and have no intention to, operate illegally and have nothing to hide.

What I have discovered is thatcomplying is not too much of a burden, given that anyone who is selling anything, should be declaring that income for tax purposes anyway.

All we need is for various companies to make this compliance easier. Xenforo could do that. Paypal could do that. Various shopping cart software could do that (many of already are).

 

[Jeanette]

It seems they are, if they sell in the Eu (as interpreted by this law - a download by an EU customer is a sale in the EU.

These rules only apply where the seller and buyer are in EU countries.

From 1 January 2015, the rules around the European Union (EU) VAT place of supply of services will change. This will affect the sales of digital services (broadcasting, telecommunications and e-services) from a business to a consumer (private individuals and non-business entities eg, public authorities or charitable bodies). The place of taxation will be determined by the location of the consumer.

Where digital services are supplied on a business to consumer basis, the supplier is responsible for accounting for VAT on the supply:

• 
  
• to the tax authority
  
• at the VAT rate applicable
  

in the consumer’s EU member state.

The changes will create a level playing field for UK businesses by removing the current competitive advantage of EU member states with lower rates of VAT.

Jx

 

[Lord Squishy]

These rules only apply where the seller and buyer are in EU countries.

That's... not true.

The rules apply to anyone selling in a member state.

 

[Jeanette]

That's... not true.

The rules apply to anyone selling in a member state.

Apologies you are right I was wrong

Jx

 

[Mr Lucky]

Wait a second Are you telling me that if user x purchases a (gaming) code from me and I send out the digital product to him via email (as I do) no VAT needs to be applied?

If so, I have thrown away a lot of money towards to the tax authorities

If you are already registered for VAT in your own country, and your sales exceed the VATable threshold, then you continue to pay VAT as normal. If you sales are manually emailed digital supplies as opposed to automated, it's only the new EU rules that don't apply to you.

If your gaming codes are sent out via an automated system (as with xenforo upgrades) then you need to account to each EU member state separately or join the MOSS system.

 

[Mr Lucky]

That's... not true.

The rules apply to anyone selling in a member state.

These rules apply to any business anywhere in the world who supply digital services to consumers in EU member states.

 

[TPerry]

Good luck on collections. Luckily there doesn't exist an international tax agency. I know that would be loved by some "social progressives" that believe in the robin hood principal. Pretty sure a war between two countries were fought over something similar (involving tea) back in the 1700's. Got a feeling the attitude that caused that over taxation without representation would go over about the same in the 2000's.

 

[Bram]

So hypothetically speaking. If we would move away from doing automated user upgrades via Paypal and upgrade their accounts by hand (after checking if a payment was made to paypal) it would not apply to the new EU rules?

Just trying to find a way out of this nonsense.

 

[Mr Lucky]

So hypothetically speaking. If we would move away from doing automated user upgrades via Paypal and upgrade their accounts by hand (after checking if a payment was made to paypal) it would not apply to the new EU rules?

Just trying to find a way out of this nonsense.

I think so, however trying to get the same information two days in a row from hmrc is proving difficult. They seem to interpreting the rules as they go along.

Edit: I'm not sure now. The automated vs manual criteria seems to apply to sales of digital goods, upgrades would counted as supply of digital services I think. It's on my list of questions to ask them

 

[Paul B]

Just to add to this, it's not as simple as some think, complying with the new rules.

If you sell a digital service or product to an EU consumer, you now have to charge VAT at their country's rate.

In order to do that, you need 2 pieces of corroborating evidence, to support why you charged VAT at that rate, i.e. that the purchaser resides in that country.

You then need to to a MOSS VAT return with HMRC, or register in every EU country and file separately.

It's the 2 pieces of evidence which may prove problematic as consumers don't always give valid addresses, which match the country their credit card or bank account is registered in, for example.

It really is a monumentally stupid change in the tax law.

 

[Mr Lucky]

Just to add to this, it's not as simple as some think, complying with the new rules.

If you sell a digital service or product to an EU consumer, you now have to charge VAT at their country's rate.

In order to do that, you need 2 pieces of corroborating evidence, to support why you charged VAT at that rate, i.e. that the purchaser resides in that country.

You then need to to a MOSS VAT return with HMRC, or register in every EU country and file separately.

It's the 2 pieces of evidence which may prove problematic as consumers don't always give valid addresses, which match the country their credit card or bank account is registered in, for example.

It really is a monumentally stupid change in the tax law.

I have raised this as a ticket with xenforo, as I think it is crucial that we should be able to get this information.

I spoke to HMRC who told me it is something that has to be done "at the shopping cart" - in this case the shopping cart is the xenforo upgrade system which does not have an option to give you country information (as do various standard shopping carts)

Also Paypal can give country information, BUT on the xenforo upgrades there is a paypal button that leads to a paypal form that has no option for the user to include their country (even if they wanted to so you can charge them more)

I asked Paypal why they can't make it like a normal sale or a donation (for which their payment form does collect address) and the answer I got was that i must configure the button to do that, and to ask at http://developer.paypal.com

However I'm not sure they would help unless I know how to change the button in xenforo, which I don't have the slightest clue how to do.

 

[Paul B]

I have raised this as a ticket with xenforo, as I think it is crucial that we should be able to get this information.

I responded to your ticket.

The upgrade system in its current format isn't designed for this radical change and would require a rewrite.

Due to the nature of the changes, it would only be something which would be done for a major release.