UK VAT question - already registered on flat rate scheme

2 replies
HI all,

I've searched this forum and a few other places to try and get some clarity on how to handle VAT for my new product. Here is the situation:

I want to launch a front end product + membership shortly (next couple of weeks)

I'm thinking of using paypal to start with as my payment processor

I currently work in my day job as an IT contractor through a LTD company

The company is registered for VAT under the flat rate scheme (I get to keep 5.5% of the 20% VAT I charge my contracting clients but don't reclaim VAT on purchases).

As my LTD is already VAT registered I understand I have to charge VAT for my digital products to customers in the EU.

I'm not too fussed about staying on the flat rate scheme if it involves avoiding a massive administerial headache when it comes to VAT returns.

Question - does paypal automatically apply VAT to transactions where applicable?

I have set up a VAT option for the UK for 20% - do I have to do this option for each EU state - if so can I just use the 1 paypal button on my pages?

Sorry if it's a daft question but I just searched the paypal help site and there is 1 result for VAT when I search which doesn't really help.

Thanks!
#flat #question #rate #registered #scheme #vat
  • Profile picture of the author Andy Fletcher
    Hi,

    First of all, and this is really important so pay attention. I'm not an accountant, I'm not a solicitor and I'm in no way shape or form qualified to give advice on this topic. So presume everything I say is wrong and make sure you check with a professional.

    That said, we've had a fair bit of exposure dealing with VAT as part of DigiResults so I can at least offer what I know from *my experience*.

    So first up, whether you have to charge VAT or not. Just because your LTD company is VAT registered doesn't mean you have to. You can easily (for around £100) set up a new company to handle the product sales and, if EU based sales remain below the VAT threshold, not have to worry about it at all.

    If you do have to charge VAT then PayPal has the ability to apply it but you have to tell them when to and how much they don't do it for you. So you'll need to use an appropriate shopping cart solution that keeps relevant records and knows when/how much VAT to charge.

    Useful VAT related links -

    https://www.gov.uk/browse/tax/vat
    HM Revenue & Customs: VAT

    Hope that helps,

    Andy
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    • Profile picture of the author dotdash
      Thanks Andy,

      I'll talk to my accountant about this. So ar all the funding for the IM business has come from contracting revenue and I intend to spend LTD company funds on traffic etc until it's paying for itself - spent >£10k already which I've put all through the company. If I can set up another company (maybe a child company?) to process the transactions maybe that would be a plan.

      Otherwise I'll just set up paypal to add the VAT even if I have to add it for all the EU countries.

      I'll report back what my accountant says.
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