Sales Tax / VAT Question

Actually with the supply of GOODS, the place of supply is where the customer takes delivery (i.e. the CUSTOMERS country). Whereas with the supply of SERVICES the place of supply is generally deemed to be the VENDORS country. But there are exceptions.

But I think these extracts, from the HMRC website clarifies the situation for ebooks etc supplied from the UK.

Digitised publications

Digitised publications are combinations of text and images, such as online newspapers, e-books and e-zines. The place of supply depends on the content. If a publication is largely fiction, such as a novel, the place of supply is always where the supplier belongs. If the content is non-fiction, it is treated as information, and special rules apply - the place of supply is where the customer belongs.

VAT on sales to someone who is VAT registered in another EU country


If you're sending goods to someone who is genuinely registered for VAT in the destination EU country, you can zero-rate the supply for VAT purposes, provided you meet all the conditions below.
To account for the VAT on zero-rated sales to another EU country, include the value of the goods and services in your VAT return in boxes 6 and 8 in the usual way. If any VAT is due in the destination country, then your customer pays it to the tax office in their country.
You can only zero-rate these supplies when all these conditions are met:

• the goods are sent out of the UK to somewhere in another EU country
• whoever you're sending them to is genuinely registered for VAT in another EU country
• you get their VAT registration number - including the two letter country code - and show it on your sales invoice
• you've got paperwork showing that the goods have gone out of the UK - 'evidence of removal'
• you despatch the goods and get evidence of removal within a set time - which is normally three months

Evidence of removal will include a number of things like:

• customer orders
• correspondence with customers
• sales invoices

VAT on sales to someone who isn't VAT registered in another EU country

If you supply goods to a customer in another EU country who isn't registered for VAT in that country, and you are responsible for delivery - that is, they don't collect them - then this is called a 'distance sale'. The most common examples are mail order or Internet sales to private individuals in another EU country.


For these supplies, you must charge VAT at UK rates in the normal way. However, each country has a 'distance selling threshold'. If the value of your sales to that country exceeds this threshold, you must register for VAT in that country, and charge their rate of VAT on sales to that country.

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And if they're outside of the EU then the supply is outside the scope of VAT.

So I still believe that what I said in my first post is correct in terms of charging, because if you're VAT registered in the UK it doesn't matter where your ebooks are supplied from or where your servers are - it is where it is supplied to that is important - that is what is deemed as the place of supply for Digitised products including ebooks and ezines. And if that's outside the EU it's outside the scope (no VAT), if it's a VAT registered business it's zero rated (VAT at 0%) as long as you maintan the correct records, and if it's an individual or non VAT registered business it's a 'distance sale' and is charged at UK VAT as long as your sales to each particular country don't exceed the threshold.

Kate

Hi Product Creator

Traders only need to apply for VAT registration in the UK if their turnover is over £67,000, although you can choose to register before you reach that threshold if you want to. The only people who are exempt from that requirement are those that provide what are known as 'exempt' supplies - the list of what are exempt supplies is a bit weird, it includes:-

• insurance, finance and credit
• some education and training
• fund raising events by charities
• subscriptions to some membership organisations
• selling, leasing and letting of commercial land and buildings - but this exemption can be waived

there are more, but e-books and most typical IM products would not be exempt. It is quite difficult for a business to be entirely exempt.

So, assuming you're in a typical IM business then you should be registering for VAT if you reach £67k turnover in any 12 month period.

When you see some of the claims for potential earnings from IM, then there's probably more people that should be registering for VAT without even realising it. And, lets face it who wants to give away 15% when you've just had a nice success, after years of blood sweat & tears? However, you may end up reclaiming more VAT than you pay, because you would be very likely to make more sales outside the EU.

I'm sure that many people just dabble in IM without keeping proper business records and then suddenly success strikes, money tips in to the Paypal account and there's been no thought to keeping books or accounting records.

As you say alot of WSO's & Paypal sales don't have VAT charged. Or at least they don't appear to. If a seller is VAT registered they should send a VAT receipt to the purchaser (if it's a VATable sale e.g. sale within UK or EU), but if they don't, they could be raising a notional one that they use for their own VAT records but that they don't actually send to the customer (wrong but possible). I accept that in all likelihood many are not registered for VAT - but don't forget this only applies to UK / EU sellers.

My advice would be that if you are starting to make substantial sales then make sure you're treating your efforts as a proper business and if you haven't done so already, start keeping proper accounts and register for VAT if you are likely to reach the threshold. It's a pain, as it takes time and you'll end up paying more tax than you'd like, but there are benefits, such as reclaiming VAT on things you buy for the business and being able to make your business expenses and some living expenses tax deductible from your income tax bill.

Generally, your Paypal account records would form part of your accounting records, because you are likely to have transfers between your bank account and your Paypal account, so it is unlikely to be invisible. If you had any kind of tax inspection, the inspectors would soon see these transfers and would be asking to see your Paypal records too.

The pain of having Her Majesty's Revenue & Customs breathing down your neck and digging through upto 6 years of your finance records, plus penalties, charges and back tax is even worse than the pain of doing it properly.

Sorry to be a bearer of doom to those excited by the prospect of a carefree IM existance.

This whole thing is a problem if you sell globally and you publish a global price, because you don't want to have different prices where people in the EU are penalised because you have to add VAT. So if you do have to register for VAT, here is what I suggest:-

Say you have a $100 product. Sell it to everyone at $100. Somewhere in your sales confirmation say that if customers need a VAT invoice, they must email you and you will send them one. Meanwhile, in your own records you must show whether it is a vatable sale (UK/EU) or 'outside the scope (everywhere else in the world).

Where your sale is in the UK, you should treat the sale as $86.95 to you and $13.05 to the VAT man. In the EU it will depend if it's a VAT registered customer or not and if it's outside the EU then the whole $100 is yours.

BTW, I was an accountant in a former life.

Kate

To qualify for zero rating, a printed book or booklet, should normally be 'bound in a cover stiffer than it's pages'. I guess that's one distinction that sets an e-book, and a lot of other material, aside from from the defined zero rated printed products, in the eyes of HMRC.

There's probably loads of printed material out there that people think is zero rated, but HMRC would challenge - if they were aware / could be bothered etc.

And 'Photocopies of zero-rated items are always standard-rated unless the copies can be properly described as books, booklets, brochures, pamphlets, leaflets etc, and meet all the criteria for such items' - according to HMRC.

Didn't know about the 'fax' thing though. But I guess that would still only apply if the original material could be properly classed as a book.

Kate