Selling online & Vat

JezW

Hi, I'm a Vat registered software developer selling online, I want to lease a new system based upon credits purchased at e.g. £5 each. If I add Vat that becomes £6 each. But what if an international buyer purchases some credits, I can't charge them Vat and I can't prove that they are actually outside of the EU, they could just claim this to reduce the online price. The whole thing has to be automated online and offer instant digital download.

Or, do I charge £6 Inc Vat and specify this on an attached auto generated invoice and let the end user re-claim any Vat incorrectly charged.

martindow

JezW wrote: »

Or, do I charge £6 Inc Vat and specify this on an attached auto generated invoice and let the end user re-claim any Vat incorrectly charged.

You're still open to people claiming their pound back giving some exotic address but actually living here. You really need some proof of their location I would have thought to satisfy HMRC.

Have you asked, or better still written to, HMRC to ask their advice?

JasonLVC

The place of supply of electronic services is complicated.

For Business 2 Business transactions, the place of supply is where the customer is based. You only charge VAT where the place of supply is the UK so if the place of supply is where the customer is and the customer is non-EU, then it is not subject to UK VAT.

HMRC define 'business to business" as being you must be satisfied the customer is "in business" as opposed to a private individual. Evidence could be the customer uses a trading name, has an incorporation number or similar.

This detail can be verified electronically via your web page/basket by having a "company name" space in the address of customer section of your basket. Also, if payment is being made by credit card, you can have your basket identify if the card is UK or US or whatever....so you should be able to determine if the customer is in business or not and where they are in the world (provided they aren;t fibbing but there's nothing you can do to avoid that).

For Business 2 Consumer transactions, the place of supply will be where the supplier is based and as you are the supplier and you're based in the UK then the sales will be subject to UK VAT, regardless of where the customer is based in the world.

You need to make sure that if you are not charging VAT that you can justify why (as per above). If you are charging VAT then no worries, raise the invoice showing the VAT, HMRC will be happy.

If your web site is not sophisticated enough to do all of the above, then charging VAT will be the most appropriate route to take but if you can differentiate then it makes your product cheaper for some clients and means you pay less over to HMRC, improving your cashflow.

Are you on the Flat Rate Scheme by any chance? If so, non-VATable sales to foreign business customers will be bad for you.

JezW

Thanks for the indepth answer,

To follow up on this,
The services are aimed at retail outlets in all countries. There may even be a few private individuals using the services too. These systems are already in place and used throughout the UK & Ireland

I host the systems myself from my own server which is in Germany although my business is in the UK, other people and businesses subscribe to using my systems currently through standing order arrangements, invoices etc. This is to be expanded upon by allowing anyone to simply pay-as-you-go through an automated payments system, possibly even just Paypal.

There is no real direct contact between myself and the end user of these new pay-as-you-go system so I can't really prove where they are or who they are. If I can legally & simply, charge them a figure including Vat, I'm happy with that. If they are not in the EU then they are going to be paying 20% too much but this could be avoided by buying bulk 'Credits' with an invoiced receipt.

But can I legally charge Vat even though the customer shouldn't be paying it?

JasonLVC

JezW wrote: »

But can I legally charge Vat even though the customer shouldn't be paying it?

Put it this way, HMRC are not going to have a problem if you are charging foreign customers UK VAT in error and the general advice to give a business where they're unsure of the VAT treatment is to charge VAT in the first instance until advised otherwise - better to charge and pay over VAT than not at all.

HMRC may inspect your business and advise that you don't need to charge all your customers VAT and advise you may wish to credit note them, but they'll not enforce it. Penalties and interest are only due where that has been an underpayment of VAT so there's no mileage in a HMRC Officer seeing money exit the Treasury unless someone is complaining about it.

In your case, it will likely be an overpayment of VAT, rather than an underpayment.

Are you on flat rate scheme?

bengalknights

as JasonLVC states it best to actually just charge them VAT then when a customer points out there outside etc just ask for some proof of residence etc and refund the VAT element or credit note them.