Tax on software downloads from outside the EU

Sterlingtimes

I purchase a one-year software licence from the USA for online download for $69.98. "Grammarly, Inc." show no taxation on the purchase invoice. Is this correct? Equivalent prices were shown in GBP.

TheCyclingProgrammer

Unless this was a B2B transaction, then you should have been charged U.K. VAT.

If they aren’t charging VAT correctly then that’s not your problem, I wouldn’t worry about it. I imagine there’s loads of non-EU businesses that are either ignorant of or ignoring EU VAT rules on electronically supplied services.

They may be accounting for VAT, I don’t think they aren’t obliged to provide a VAT invoice.

laticsforlife

You got a purchase invoice, and not a VAT invoice (of course USA doesn't have VAT pre se, but does have State and federal tax).

Why do you care?

00ec25

laticsforlife wrote: »

You got a purchase invoice, and not a VAT invoice (of course USA doesn't have VAT pre se, but does have State and federal tax).

nonetheless, on the basis that Grammarly.inc is, according to its own website, used by 10 million (English language) users, many of whom will be non business users, it is not unreasonable to assume that their sales in the UK are above the UK VAT threshold and thus, as mentioned in post #2, they are required to be UK VAT registered

"Businesses outside the EU (for example, the USA) that supply digital services to consumers in one or more EU member state are also affected by the changes. They’ll either have to register for VAT MOSS in a member state, or register in each member state where they have non-business customers."
https://www.gov.uk/government/publications/vat-supplying-digital-services-to-private-consumers/vat-businesses-supplying-digital-services-to-private-consumers

TheCyclingProgrammer

For cross border e-service sales, I believe there is no registration threshold so there should always be U.K. VAT on any downloaded software, technically.

From 1 January 2015 the VAT rules for place of supply changed in the EU for sales of digital services from businesses to consumers. The change doesn’t affect business to business sales.

For cross border supplies of digital services there is no registration threshold and VAT is charged at the rate due in the consumer’s country.

https://www.gov.uk/guidance/register-and-use-the-vat-mini-one-stop-shop

In fact, it’s often overlooked that the 2015 changes largely affected EU based businesses because a similar rule on e-services for non EU companies had already existed since 2003 (the VoES system which has now been superseded by MOSS) but again this was probably largely ignored by smaller businesses.

It was the 2003 rules in the first place that was one of the reason why companies like Apple and Amazon sold their digital software in the EU through a Luxembourg company because it meant instead of having to register and charge local VAT in each country (as they’d have to if selling from the US) they could sell under the old EU place of supply rules and charge Luxembourg VAT (notably zero rate for ebooks vs standard rate in the U.K.). That’s why the VATMOSS rules were brought in to level the playing field.

Sterlingtimes

TheCyclingProgrammer wrote: »

Unless this was a B2B transaction, then you should have been charged U.K. VAT.

If they aren’t charging VAT correctly then that’s not your problem ...

Thank you for your kind response. This is in effect a B2B transaction. Do I just report on a transaction of this type that VAT and/or import tax has not been charged?

Sterlingtimes

Thank you, all. It is not so much that it is a large amount: I am just interested in knowing how such a transaction should be treated. I purchased via my small VAT registered business.

TheCyclingProgrammer

If you purchased it as a VAT registered business then there should be no VAT. You must account for this purchase under the reverse charge rules. You should normally provide your VAT number or some other proof that you’re a business to ensure the supplier doesn’t charge VAT.

In short you account for the sale on your VAT return as if you’d both purchased and supplied it yourself, taking the converted U.K. amount as the net cost and calculating U.K. VAT on this and adding it to the relevant boxes for purchases (IIRC it’s 1, 4, 6, and 7).

Sterlingtimes

TheCyclingProgrammer wrote: »

If you purchased it as a VAT registered business then there should be no VAT. You must account for this purchase under the rev ...

Thank you. Of course, I am just using it as a tool within my business and not onward licensing. Thank you for your guidance. Usually, when I buy a software licence from outside of the EU, VAT is added.

TheCyclingProgrammer

Sterlingtimes wrote: »

Usually, when I buy a software licence from outside of the EU, VAT is added.

If you tell the supplier you're a VAT registered business they should not charge you VAT.

Sterlingtimes

TheCyclingProgrammer wrote: »

If you tell the supplier you're a VAT registered business they should not charge you VAT.

That is the perfect answer. Many thanks, Sterling.