I wasn’t going to write any more about VAT here, given that I really don’t want to be forever remembered as a crazy VAT lady however this is important. We need urgently to have clarification of what a “marketplace” is and who is liable to pay the VAT due, in the eyes of the EU.
The EU explanatory notes in section 3 explain how to decide who is “making the supply”. There are various flow charts and explanations. These essentially are attempting to show the chain that the content might pass through from the content owner to the final consumer.
Most of us selling online have not coded an entire payment and delivery service and hosted that on our own server. That isn’t how things work these days. We sell digital stuff with at least a PSP in the equation, but more commonly with an online store service, and maybe a digital delivery provider – as I currently do for my eBooks. We still remain the seller of the item. Our name is on the invoice and we set the terms, we’ve just outsourced some of the delivery software to a SaaS application.
However, HMRC and some digital delivery providers appear to be interpreting the legislation to mean that any SaaS that “authorizes delivery” of the download is actually liable for the VAT and not the owner of the content. I think (and hope) this is down to a misinterpretation of the concept of authorizing delivery. I might be using third party software as a shopping cart or to facilitate secure downloads rather than developing or installing something on my server, however I as the content owner have set the terms by which that delivery is authorized (by a successful payment being completed).
Read this article, from a digital delivery provider. In particular look at the response they have had from HMRC at the end of the article.
Another post from Folksy which is perhaps more of a grey area as they are more of something that could be described as a marketplace, despite the fact that if you buy an item you buy from the individual creator – not Folksy.
This appears to be yet another instance of HMRC failing to understand the nature of how business is done online, yet I believe it needs urgent clarification. HMRC deciding that any SaaS involved in digital delivery becomes liable for VAT would be hugely damaging to any startup in the market, as they would immediately have to start dealing with VAT on behalf of anyone using the service. In addition, I believe that we in the EU would find that services from outside of the EU will simply start to refuse to take our business.
It is obviously nonsense that if you use third party self-hosted software to sell and deliver an eBook you are liable for VAT but if you use software hosted elsewhere they are liable. The customer relationship remains the same. However this is the tax authority who have decided that if you “manually email” a PDF you do not fall under these rules, but if you email a link to download the item, you do.
I believe there are commercial opportunities for companies willing to shoulder the VAT responsibility and many small sellers will be grateful to companies willing to fulfill that role. However I ask anyone with a SaaS application, or anyone who uses a SaaS application for anything relating to the delivery of digital products, to make some noise about this urgently. Request that HMRC clarify the issue, contact the providers you use and ask them to get this clarified in order that everyone – developers of SaaS applications and those who use them – can at least move forward in this exciting new world the EU have created for us.
2 Comments
This is a minefield! I use a third party hosted solution for my eCommerce website, I use a secure payment gateway to process transactions and I also rely on eBay and PayPal for further sales. All of these things cost me a not unsubstantial monthly sum, but who is paying the VAT in each instance?
I think this is a very confusing subject matter. I do think however it will potentially make whats being sold on line better quality web design, better eBooks, as it will stop people trying to churning out rubbish for £1. It will help established companies paying VAT already.