Atomic Systems

DT's announcement: https://www.facebook.com/DigitalTractio ... 1624774701

"This new legislation will cripple, and potentially force into closure, thousands of micro-businesses (of which DT is one) across the UK".

EU laws for VAT are changing, which means 3rd party TS developers who are based in the UK will have to increase their prices by up to 27% in order to keep trading within the EU.

DT are currently asking for opinions on what to do; they can either restrict sales to the EU and keep their price the same for UK customers, or bump up the price for everyone.

Since EU customers only make up 1/4 of their customer base, they're leaning towards restricting sales to the EU and keeping the price for UK customers the same, at least until they can look at setting up a payment portal outside the UK.

There's a real possibility this could result in sales ceasing to the EU from 1st January and even then, is it possible in this digital age to actually do such a thing if the customers lies about their provenance? Very tricky times but there is hope: http://www.clarejosa.com/articles/from- ... mber-2014/. It doesn't look particularly promising though with 24 days until the deadline and Christmas looming.

Can't see any point here. Why DT have to increase the prices for UK customers? They don't have to. VAT in UK is the same VAT in UK as it is now, even after the changes. What they have to do is preparing their store to calculate VAT dependend on the customers country (given from its billing address). Yes, over all that means that there are different customer prices for each country. But that's ok. We've done that last month with our store and it works. My a bit confusing to some customers first times, but that's the law now we have to follow and respect it. So from now promoted prices are not the final prices for each customer. So you have to declare what VAT is on it when you promote them or declare it without VAT (not possible in germany as a example .. we need to promote with german VAT included). But at all there is no reason to make panics.

The sticking point is that it affects businesses who are not currently registered for VAT who will have to start charging VAT on items purchased by UK customers AND customers in the EU with their individual rate of VAT. I assume this is the position DT are in. This means they either have to absorb the 20% and keep the prices the same or raise prices by 20%/whatever the rate of VAT is in the customer's country.

On top of this, two pieces of evidence of the customer's location must also be recorded at the checkout stage which will require upgrades to websites which doesn't come cheap and may not be possible in time for what has been an appallingly publicised change in the rules.

Finally, it leaves small businesses open to claims from any EU tax agency of wrongdoing with potentially damaging penalties.

A ruling that was meant to target Amazon/Google and the like will actually hit small businesses hardest and perversely, encourage small businesses to publish via someone like Google or Amazon (in the case of eBooks at least) to avoid having to go through this rigmarole themselves.

A (very) recent change to the rules means that UK suppliers trading under the UK VAT Threshold will still need to register with HMRC in order to use the MOSS system in respect of EU sales (for which there is no de minimis level) but they will not be required to charge UK VAT on their UK sales as long as they stay under the UK registration threshold.

http://www.telegraph.co.uk/finance/busi ... -rule.html

VAT is a complex business and everyone who might be affected by the existing and new rules should seek assistance from HMRC, their accountant or any other qualified person.

The bottom line is that anyone who sells electronic products, (see the official definitions of what these are) such as downloadable software, to EU member states of ANY value will have to account for VAT at the rate charged in the country of the purchaser. A bit of hassle to register, maintain records and make returns, but the biggest problem must be to set up your electronic shop to show the correct price for each country bearing in mind the vast range of VAT rates in the EU member countries.

I think it has to be true that any small business supplying downloadable software to the EU is going to have to decide if it is all going to be worth it, especially as errors or non-compliance carry the inevitable penalties that already hang onerously over the small entrepreneurs of today.

-

“VAT is a simple tax…” Anthony Barber, Chancellor of the Exchequer on the introduction of VAT on April’ Fool’s Day in 1973.

Regards,

Len

I have never heard so much rubbish, charging different prices to different customers, having a database of customers as to where they live. Companies now have to be registered for VAT as such a UK company will pay VAT to the British Government on all sales as this is where there company is based unless they have more than one office and as we are talking about very small businesses then this would not apply so if somebody like DT made 10 sales of £10 each, 8 to customer in the UK, 1 to a customer in Germany and 1 customer in the US then the they would make £100 and be liable to pay £20 VAT to the UK treasury not £16 and varying amounts to US and Germany. therefore any increases that cannot be absorbed i.e the extra £2 would be added to the product making a £10 sale into £12 it does not matter what VAT is in the rest of the EU. Likewise if a product is bought from a German company UK customers would pay what ever VAT Germany has. The only fluctuation in pricing would be the use of different currencies against the British Pound.

david1 wrote:Companies now have to be registered for VAT as such a UK company will pay VAT to the British Government on all sales

Not necessarily. Companies or sole traders with an annual income below a certain level don't need to register for (or charge) VAT. This rule change will mean an amazing increase in expense and admin.

Paul

david1 wrote:a UK company will pay VAT to the British Government on all sales as this is where there company is based

Read the link in the OP. This is what is changing.

How is this going to work for the consumer? For example, I reside outside of the UK, but still bank with a UK bank. Initially, this caused a problem with Steam, but was resolved by them as they accepted it to be ostensibly a UK transaction because of where I bank. Presumably, this also will change and I'll have to open a local account..? Also, how is this going to affect PayPal users?

Rik.

You will be charged VAT according to your location, as far as I can tell where you bank will be irrelevant. In your case you should be charged the Maltese VAT rate of 18%.

Regards,

Len

This all works the other way round as well as someone selling e-services into the EU who is not based in an EU country (e.g. USA) still has to collect VAT at the rate levied by the country that they are selling into and then pass that VAT on to each country through the non-union VAT MOSS system.

On the other hand, a UK company selling e-services to anywhere other than an EU country will not have to charge any VAT.

So much for the digital revolution. It is all very well collecting tax for your own country, but having to do it for 27 others as well seems more than unreasonable, unless you are Amazon perhaps.

-

The implications of this change to the collection of VAT across the European Union are wide ranging.
As with all changes to Taxation there is wild speculation, supposition, rumour and simple bullroar.

The change will impact UKTrainSim, First Class Simulations and indeed any company that sells product as defined in the new regulation.

We already have our accountant and an external accountancy company that specialises in Taxation and tax regulations looking at this matter.
A meeting has been scheduled for this weekend to discuss the options (there are a number of options already available) to plan a way forward.

I'll update here once we have had the meeting.

Thanks for the info Peter, hopefully things won't be affected too much by this terribly thought out law.

DT just posted this update (Specifically 1 minute ago when I checked; is it obvious I'm trying to avoid studying? ): https://www.facebook.com/DigitalTractio ... 8487971348

Looks like the changes to EU VAT laws can be avoided provided the service isn't automated, as then it doesn't qualify as an "E-service".

I'd imagine this is bittersweet news. The extra effort of having to manually send the download links to customers could be time consuming, which in itself is costly (time is money!).

Interested as to what other business owners have to say on this matter, and whether the stance DT have taken is the best option.